Equity Flashcards
What rights does each share of stock carry?
Each share of stock has certain rights and privileges, including the right to vote for directors, share in profits and losses, and share in corporate assets upon liquidation.
What is the preemptive right?
The preemptive right allows existing stockholders to maintain their ownership level by sharing proportionately in any new issues of stock in the same class.
What are the advantages of the share system?
The share system facilitates dividend payouts and stockholder meetings, and is governed by the Uniform Stock Transfer Act and the Uniform Commercial Code.
What does common stock represent?
Common stock represents the basic ownership interest in a corporation, bearing the ultimate risks of loss and receiving the benefits of success.
What is preferred stock?
Preferred stock represents special preference given in exchange for sacrificing some rights of common stock, often having preference to claims on earnings and liquidation.
What is stockholders’ equity?
Stockholders’ equity represents a claim against a portion of the total assets of the company, also known as owners’ equity, shareholders’ equity, or corporate capital.
How is stockholders’ equity calculated?
Stockholders’ equity is the difference between the assets and liabilities of a company, also referred to as the residual interest.
What is Legal Capital?
Legal Capital is the par value of the stock issued by the company.
What is contributed capital?
Contributed capital is how much the investors contributed to the company.
What are the two primary sources of equity?
The two primary sources of equity are contributed capital and earned capital.
What is the formula for stockholders’ equity?
Stockholders’ equity = Capital Stock + Additional Paid-In Capital + Retained Earnings - Treasury Stock (at cost).
What is earned capital?
Earned capital (Retained Earnings) is what the company earned and kept, consisting of cumulative earnings and losses.
What is capital stock?
Capital stock is part of contributed capital, including common and preferred stock issued by a company.
What is additional paid-in capital?
Additional Paid-In Capital is part of contributed capital that increases when stock is sold or issued above par.
What does retained earnings represent?
Retained earnings represent undistributed income that remains invested in the company.
What is treasury stock?
Treasury stock is when a company buys back its own stock, shown as a negative in accounting.
What is the nature of treasury stock in accounting?
Treasury stock is a contra-equity account with a normal debit balance.
How is treasury stock accounted for when reacquired?
When reacquiring stock, debit Treasury Stock for the cost of the acquisition and credit Cash.
What happens when treasury stock is sold for more than its cost?
When selling treasury stock for more than its cost, the excess is credited to Paid in Capital from Treasury Stock.
Can treasury stock transactions increase retained earnings?
Treasury stock transactions can decrease but not increase retained earnings.
What are the procedures for issuing stock?
- State must authorize stock. 2. Corporation offers shares for sale. 3. Corporation receives funds for stock and issues shares.
What are authorized shares?
Authorized shares are how many shares of stock a company could issue, if it chose to.
What are Issued Shares?
Issued Shares are the total number of shares a company has distributed. They cannot exceed the authorized number.
What are Outstanding Shares?
Outstanding Shares are the shares that are in the hands of stockholders. They are calculated as issued shares minus treasury shares.