Chapter #8 Flashcards
common stock
most widespread form of ownership in corporation
issued shares
shares of stock that have been offered and sold to sharholders
rights of stockholders
vote of board members
share in corporation´s profits
share in any assets left if corporation must dissolve
acquire more shared if corporations issues new stock
par value
legal amount assigned to a share
not same as market value
what can the par value be used for
calculation of # of shares that have been issued
what are shares authorized
# of shares a corporation is allowed to sell # is included in corporate charter
what are shares of treasury stock
created when company buys back own stock from shareholders
what can company do with treasury stock in the future
sell shares again
cancel reacquired shares
what are outstanding shares
issued shares - treasury shares
shares that have been issued and is held by stockholders
what is stated value
legal amount assigned by the board of directors to each share after charter is granted
no-par value stock
a stock that has not been assigned a value by the board of directors
legal capital
money that company needs to retain in business to protect corporate creditors
not available for withdrawal by the stockholder
legal capital if par value stock is issued
legal capital = # of shares issued x par value
legal capital if no-par value stock with stated value is issued
legal capital = # of shares issued x stated value
legal capital if no-par value stock without stated value is issued
legal capital = # of shares sold x selling price
dividends
distributions of corporation´s earnings given to shareholders
important dates related to dividends
decleartion date
date of record
payment date
date of record
whoever owns stock at this date receives dividends
types of preferred stock
cumulative
noncumulative
cumulative preferred stock
accumulated dividends from previous years needs to be paid to preferred stockholders before dividends can be paid to common stockholders
noncumulative preferred stock
board decides to make up any missed dividends to preferred stockholders
why do companies buy their own stock (treasury stock)
have stock to distribute to eployees for compensation
return cash to shareholders using a way that is more flexible for both firm and shareholder than paying dividends
increase companies earning per share
reduce chash needed to pay future dividends
reduce chance of a hostile takeover
what is purchase of treasury stock recorded as
decrease in asset (cash)
decrease in shareholder´s equity
how do we record selling of treasury stocks
# stocks sold times amount which they were bought for as treasury stock in shareholder´s equity # stocks sold times amount excessing purchase price per stock in paid-in capital from treasury stock transaction
stock dividends
instead of cash shareholders receive additional shares of stock
small stock dividend
less than 25% of company´s outstanding stock
company uses market value to record transaction
large stock dividend
greater than 25% of company´s outstanding stock
company uses par value to record transaction
effect of stock dividends on the % of ownership of each shareholder
it stays the same it only includes more shares
stock split
division of shares to increase # of outstanding shares
par value per share decreases
retained earnings
all earnings that have not been distributed to stockholder
what does retained earnings include
net incomes - any losses - any dividends
does not include cash
equation for ending retained earnings
beg. retained earnings + net income for period - dividends
two ratios that help evaluate the return to shareholders
return on equity
earnings per share
what does return on equity measure
amount of income earned with each dollar of common shareholder´s investment in the firm
equation to calculate return on equity
net income -preferred dividends / average common shareholders´ equity
earnings per share
use current earnigns to predict future dividends and stock prices
equation to calculate earnings per share
net income - preferred dividends / weighted average # of common shares outstanding
