Test 2 Flashcards
General Partner
In LP, assumes mgmt duties & unlimited liability for partnership.
LLC
Owner (members) have limited liability and have an active role in mgmt. Limited life and treated as a partnership for tax purposes.
Limited partners
In LP, no personal liability beyond investment.
Mutual agency
Each partner a fully authorized agent of partnership. Can contractually bind partnership independent of other partners.
Partnership
Voluntary, partnership agreement, limited life, taxation at individual level, mutual agency, unlimited liability, co-ownership of property
S Corp
100 or fewer stockholders - treated as partnership for tax purposes, but with limited liability of C Corp
Unlimited Liability
implies each partner can be called on to pay partnership’s debts
Call Price
Amount paid to call and retire a preferred share.
Callable preferred stock
Gives issuing company right to purchase stock from holders at specified dates and prices.
common stock
Vote, transfer ownership, preemptive right to maintain % ownership, dividends, share assets remaining after creditors & preferred stockowners paid All have same rights and characteristics.
convertible preferred stock
Option to exchanged preferred stock for common shares at a specified rate.
cumulative preferred stock
Right to be paid both current and all preor periods’ unpaid dividends - before common stock receives any dividends.
Date of Declaration
Date directors declare a dividend. Creates legal liability that must be journaled.
Date of Record
Date where stock owners are recorded for receipt of dividends. No journal entry.
Diluted EPS
=(NI-Preferred Div)/(weighted avg. shares outstanding + any convertible securities)
Dividend yield
=Annual cash dividend/market price
EPS
=(NI-Preferred Div)/Weighted Avg. Shares Outstanding.
Financial leverage
Use of preferred stock to increase return to common shareholders. Also, debt issued with interest rate lower than the rate earned from using the assets the creditors lend the company.
Large Stock Dividend/Small Stock Dividend
Lg - Distribution of >25% of previously outstanding shares
Sm - Distribution of 25% or less of previously outstanding shares
Minimum legal capital
Amount buyers of stock must contribute to company or be subject to pay at a future date
noncumulative preferred stock
No right to prior periods’ unpaid dividends.
nonparticipating preferred stock
Limiteds dividends to max. each year.
paid-in capital
Total amount of cash and other assets received for stock.
participating preferred stock
Allows sharing with common stockholders in any dividends paid in excess of the percent or dollar amount stated on preferred stock.
preferred stock
Priority status over common stock for receiving dividends and distribution of assets at dissolution of company. Generally, no right to vote.
PE ratio
=Market price/EPS
restricted retained earnings
Refers to statutory and contractual restrictions. Limited treasury stock purchases to amount of retained earnings. Loan agreements that restrict paying dividends beyond a specified % of retained earnings.
stock dividend
Distribution of additional company shares to stockholders without receipt of payment - declared by directors. Does not reduce assets & equity, transfers equity from retained earnings to contributed capital.
stock options
Right to purchase common stock at a fixed price over a specified period.
treasury stock
Not an asset. No dividends. No voting rights. Shares of the company stock acquired by the company from the market.
Advantage of C Corp
- Separate legal entity
- Limited liability of owners
- Transferrable ownership
- Continuous life
- Lack of mutual agency
- Ease of cap accululation
Disadvantages of C Corp
1) Gov regulation
2) Double taxation
Journal to issue stock
Date-Cash………….300,000
Com stk, $10 par val………..300,000
Issued 30,000 of $10 par value common stock @ par
*When issued at premium, add in
“paid-in value in excess of par value, common stock.”
Stockholders’ Equity - Balance sheet
Stockholder’s equity
Common Stock -
$10 par value
50,000 authorized
30,000 issued & outstanding………………300,000
Retained earnings……. 65,000
Total SE………………..365,000
*Issued at premium - add in “Paid-in capital in excess of par value, common stock”
Journal for cash dividend
**Dec Date **
Date-Retained Earnings….50,000
Com Div Payable.......50,000
*Declared $ per common share cash dividend.*
Record Date - no entry
Pay Date
Date-Common Dividend Payable…50,000
Cash...........................50,000
*Paid $ for common share dividend.*
Journal for stock dividend
Dec Date
Date-Retained Earnings……15,000
Com. Stk Dividend Distributable.....................................10,000
Paid-in cap in excess of par value, common stock.. ......5,000
*note: (% of total)*
Pay Date
Date-Com. Stk Div Distributabe….10,000
Common Stock, $10 par value.........10,000
*Include note here*
Stockholders’ Equity - Post Stock Dividend
Stockholders’ Equity
Common Stk - $10 par value,
15,000 authorized 10,000 outstanding……………………………100,000
Com. Stk Div distributable 1000 share……………………………….10,000
Paid-in Cap in excess of par value, com stk……………………….13,000
Retained Earnings………………………………………………………………20,000
Total Stockholder’s Equity………………………………………………….143,000
Journal Entry for Treasury Stock
Date-Treasury Stock, Common…11,000
Cash......................................11,000
*Purchased 1000 treasury shares at 11 per share*
*No gain is ever reported for sale of treasury stock.
Balance Sheet After Treasury Stock
Balance Sheet
12/31/xx
Assets
Cash………………………………18,000 - org. less buy
Other Assets………………….._95,000 _
Total Assets………………… 125,000
Liabilities - $889,000
Shareholders’ Equity
Com. Stk-10 par, 100,000
auth & issued 1000 shares
in treasury………………………….1,000,000
Retained Earnings,
11,000 restricted by
treasury stock purchase……………25,000
Less cost of treasury stock………..(11,000)
Total Stockholder’s EQ……………1,014,000
Journal Entry to Show Partnership investments
Date-Cash………………………..10,000
H. Beimler, Capital......................10,000
*To record investment of Beimler*
Journal Entry for Allocation
of Stated Ratios (Partnership)
Date-Income Summary…………………..60,000
H. Beimler, Capital................................25,000
A. Beimler, Capital.................................35,000 *To allocate income and close Income Summary*
Statement of Partners’ Equity
Statement of Partners’ Equity
For Year End 12/31/12
_H. Beimler_ _A. Beimler_ _Total_ Beg Cap Balance 0 0 0
Inv. by owners 15,000 40,000 55,000
Net Income
Salary Allowances 5,000 10,000
Int Allowances 0 0
Balance Alloccated 15,000 35,000
Total Net Income 20,000 45,000 65,000
(sum) 35,000 85,000 120,000
Less partners’ withdrawals (5,000) (10,000) (15,000)
Ending Cap Balances 30,000 75,000 105,000
