Chapter 18

Question 1

liabilities represent….

Answer 1

the creditors interests in the assets of a corporation, to the shareholder’s residual interest in those assets

Question 2

debt financing

Answer 2

notes, bonds, leases, etc. amounts representing those liabilities denote CREDITORS INTEREST in the company’s assets

Question 3

the effect of shareholders equity

Answer 3

represent the OWNERSHIP INTEREST of the shareholder

Question 4

what amount is shareholder’s equity

Answer 4

residual amount

Question 5

what is the residual amount

Answer 5

what’s left over after creditors claims have been subtracted from assets

assest - liabilities
(net assets)

Question 6

ownership interests of shareholders arise from 2 sources:

Answer 6

1. amounts INVESTED by shareholders in the corporation (paid in capital)
2. amounts earned by the corporation on behalf of its shareholder’s (retained earnings)

Question 7

primary sources of paid in capital

Answer 7

investment made by shareholders when buying preferred/common stock

Question 8

retained earnings is

Answer 8

earned capital

Question 9

4 classifications within shareholders equity

Answer 9

paid in capital
retained earnings
AOCI
Treasury stock

Question 10

paid in capital

Answer 10

consists primarily of amounts invested by shareholders when they purchase shares of stock from the corp. Amounts sometimes are invested or disinvested by others in behalf of the shareholders

Question 11

retained earnings

Answer 11

reported at a single amount

Question 12

treasury stock

Answer 12

shares previously sold were bought back by the corporation from shareholders

Question 13

ACOI

Answer 13

provides a more expansive view of the change in shareholders equity than does traditional net income. Includes net income and other gains and losses not traditionally including in net income

Question 14

transactions between corps and shareholders

Answer 14

dividends and sale/purchase of shares of the company’s stock

Question 15

4 types of gains and losses not included on IS

Answer 15

1. net holding g/l on investments
2. g/l from and amendments to post retirement plans
3. deferred g/l on derivatives
4. g/l from foreign currency translations

Question 16

AOCI is located

Answer 16

on the BS along with RE

Question 17

report 2 attributes of OCI

Answer 17

1. components of OCI created during the reporting period

2. comprehensive income accumulated over the current and prior years

Question 18

how is OCI creating during the reporting period reported

Answer 18

at either as an expanded version of the IS OR a separate statement immediately following the IS

Question 19

how is AOCI reported

Answer 19

a separate component of shareholder’s equity, following RE

Question 20

what is contained in shareholders equity

Answer 20

PS, CS, RE, AOCI

Question 21

all transactions are accounted for the same way for types of companies besides…

Answer 21

the method of accounting for capital - ownership interest in the company

Question 22

corporations have what time of liability

Answer 22

limited

Question 23

shareholder liability is limited to

Answer 23

the amount of investment in shares

Question 24

all companies can raise funds by

Answer 24

operating at a profit or borrowing

Question 25

corporations raise capital easier b/c…

Answer 25

they can sell ownership interest in the form of share of stock, ownership rights are transferred easily

Question 26

disadvantages of corporation

Answer 26

paperwork - expensive government regulations

double taxation

Question 27

what is double taxation

Answer 27

income tax on earnings and shareholders pay personal income taxes on previously taxed earnings

Question 28

types of corps

Answer 28

private individuals
public
nfp

Question 29

S Corporations

Answer 29

has both characteristics of both regular corps and partnerships. owners have limited liability protection of a corp. but income/expenses are passed through the owners like a partnership (avoid double taxation)

Question 30

Limited LIability Corps

Answer 30

owners not liable for debts except to the extent of their business. all members can be involved w/ managing w/o losing liability protection (unlike a partnership) income/exp passed through to owners as a partnership (not double tax), but there are not limits on the number of owners unlike a S corp.

Question 31

Limited LIability partnership

Answer 31

similar to LL company except it doesn’t offer all the liability protection available. Partners liable for own actions but not entirely liable for other partners actions.,

Question 32

model business corp. at

Answer 32

designed to serve as a guide to states in the development of their corporation statutes.

Question 33

articles of incorporation

Answer 33

statement of the nature of a firms business activities, the shares to be issued, and the composition of the initial board of directors. specifies max # of shares legally permitted to issue.

Question 34

ownership rights held by common shareholders:

Answer 34

1. the right to vote on matters that come before the shareholders, including the election of corps directors.
2. the right to share in profits when dividends are declared
3. the right to share in the distributions of assets if the company is liquidated.

Question 35

preemptive right

Answer 35

the right to maintain ones percentage share of ownership when new shares are issued. each shareholder is offered the opp. to buy percentage of share equal to the % of shares he owns at that time

Question 36

rights of preferred stock

Answer 36

1. typically have preference to a specified amount of dividends (stated $ amount per share or % of par value per share)
2. customarily have preference as the distribution of assets in the event the corp.is dissolved.

Question 37

Right to conversion

Answer 37

allows them to exchange shares of PS to CS at a specified conversion ration

Question 38

redemption privilege

Answer 38

allowed the option to return return shares for a pre-determined redemption price (under specific conditions)

Question 39

shares may be:

Answer 39

convertible into a specified # of another class of shares

Question 40

preferred share may be cumulative

Answer 40

if the specified dividend is not paid within the year the unpaid dividend accumulate and must be made up in a later dividend year before any dividends are paid to common shareholders

Question 41

PS may be participating

Answer 41

allowed to receive additional dividends beyond the stated amount.

Question 42

JE for shares sold for cash

Answer 42

(debit) Cash
(credit) CS
(credit) Paid in capital excess of par