final Flashcards
What is in a good partnership agreement
amounts to be invested
limits on withdrawals
distributions of income and losses
rules for the admission and withdrawal of partners
separate legal entity - corporation
it can own property in its name, can incur its own liabilities and sell stock and is subject to taxes
continuous life and transferability of ownership - corporation
stockholders own the stock of a corporation, they can buy and sell stock without affecting the corporations operations
public corporation –
corporation whose shares of stock are traded in public markets
private or nonpublic corporations –
coporations whose shares of stock are not trade publicly; are usually owned by a small group of investors
corporate structure
stockholders appoint board of directors who select officers and other major officers to manage day-to-day addairs and the officers hire employees
forming a corporation
fle an articles of incorporation with the state
state grants a charter (articles of incorporation which formally create the corporation)
corporate management and board of directors prepare a set of bylaws which are the rules and procedures for the corporations affairs
rights of shareholders
o the right to vote in matters concerning the corporation
o rights to share in distributions of earnings
o the right to chare in assets upon liquidation
par value stock –
a dollar amount assigned to each share of stock
no-par stock –
stock issued with no par
no par stock with stated value –
in some states, the board of directors is required to assign some value to no-par stock
cumulative preferred stock –
stock that has a right to receive regular dividends that were not paid in prior years
dividends in arrears –
cumulative preferred stock dividends that have not been paid in prior years
legal requirements for dividends
o sufficient retained earnings
o sufficient cash
o formal action by the board of directors
• how do stock dividends affect stockholder equity accounts and total stockholder’s equity
o they only affect stockholders equity
o the amount of the stock dividend is transferred from retained earnings to paid in capital
• why do companies buy treasury stock
o to provide shares for resale to employees
o to reissue as bonuses to employees
o to support the market price of the stock
• restrictions on retained earnings
o the use of retained earrnings for payment of dividends may be restricted by action of a corporations board of directors
o also called appropriations
o remain part of retained earnings
o legal – state law may require a restriction of retained earnings
o contractual – a corporation may enter into contracts that require restrictions of retained earnings
o discretionary – a corporations board of directors may restrict retained earnings voluntarily
• how do corporations finance their operations
o short-term debt such as purchasing goods or services on account
o long-term debt such as issuing bonds or notes payable
o equity such as issuing common or preferred stock
• what are the elements of a bond indenture
o face amount o cupon rate o starting dates o interest payment dates o maturity dates/ term
o term –
when all bonds mature at the same time
o serial –
when bonds mature over several dates
o callable –
bonds that can be redeemed by a corporation prior to maturity
o convertible –
bonds that may be exchanged for shares of common stock
• why are bond prices and interest payments inversely related
o when you purchase a bond at a discount you pay more interest because you have to pay back more than you initially received, so the interest payment is increases as the carrying amount of the bond increases by you paying on it
o when you purchase a bond at a premium you pay less interest because you have to pay back less money than you borrowed, s the interest expense decreases as the carrying amount on the bond deceases
