question

Characteristics of a Corporation: SEPARATE LEGAL EXISTENCE

answer

-advantage -corporation acts under its own name rather than in the name of its stockholders

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Characteristics of a Corporation: LIMITED LIABILITY OF STOCKHOLDERS

answer

-advantage -corporation is limited to their investment

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Characteristics of a Corporation: TRANSFERABLE OWNERSHIP RIGHTS

answer

-advantage -shareholders may sell their stock

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Characteristics of a Corporation: ABILITY TO ACQUIRE CAPITAL

answer

-advantage -corporation can obtain capital through the issuance of stock

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Characteristics of a Corporation: CONTINUOUS LIFE

answer

-advantage -continuance as a going concern is not affected by the withdrawal, death, or incapacity of a stockholder, employee, or officer

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Characteristics of a Corporation: CORPORATE MANAGEMENT

answer

-disadvantage -separation of ownership and management prevents owners from having an active role in managing the company -manage indirectly through a board of directors they select -order (stock holders-chairman and board of directors-president & chief executive officer ect.)

question

Characteristics of a Corporation: GOVERNMENT REGULATIONS

answer

-disadvantage -subject to numerous state and federal regulations -State laws, SEC laws, Stock exchange requirements, Federal regulations

question

Characteristics of a Corporation: ADDITIONAL TAXES

answer

-disadvantage -corporations pay income taxes as a separate legal entity and stockholders pay taxes on cash dividends

question

Characteristics of a Corporation: OTHER FORMS OF BUSINESS ORGANIZATION

answer

-limited partnerships -limited liability partnerships (LLPS) -limited liability companies (LLCs) -S Corporation (no double taxation & cannot have more than 75 shareholders)

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forming a corporation

answer

-file application with the secretary of state -state grants charter -corporation develops by-laws

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common stock owner rights

answer

-vote in the election of the board of directors and in corporate actions that require stock holders' approval -share in corporate earnings -maintain the same percentage ownership when additional shares of common stock are issued (the preemptive right) -share in assets upon liquidation

question

residual claim

answer

share in assets upon liquidation in proportion to their holdings (stockholder rights)

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preferred stock owner rights

answer

-no voting rights -have a preference over common stock holders as to dividends & to assets in the event of liquidation

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treasury stock

answer

corporation's own stock that it has reacquired from shareholders, but not retired

question

why do corporations purchase their outstanding stock (treasury stock) ?

answer

-to reissue the shares to officers and employees under bonus and stock compensation plans -to increase trading of the company's stock in the securities market -to have additional shares available for use in acquiring other companies -to increase earnings per share

question

for a corporation to pay a cash dividend it must have:

answer

-retained earnings -adequate cash -a declaration of dividends by the board of directors

question

reasons why corporations issue stock dividends:

answer

-to satisfy stockholders' dividend expectations without spending cash -to increase the marketability of the corporation's stock -to emphasize that a portion of stockholders' equity has been permanently reinvested in the business

question

stock split

answer

-reduces the market value of shares -no entry recorded for a stock split -decrease par value -increase number of shares -no change to total paid-in capital, total retained earnings, total par value (common stock)

question

stock dividend

answer

-increases total paid-in capital and total par value (common stock) -decreases total retained earnings -no change to par value per share

question

why do companies issue stock?

answer

-company can raise more capital than it could borrow -company does not have to make interest payments to creditors -company does not have to make principal payments

question

cash dividend (definition)

answer

a pro rata (proportional to ownership) distribution of cash to stockholders

question

charter

answer

a document that describes a corporation's name and purpose; types of stock and number of shares authorized; names of individuals involved in the formation; and number of shares each individual has agreed to purchase

question

corporation

answer

a company organized as a separate legal entity with most of the rights and privileges or a person

question

cumulative dividend

answer

a feature of preferred stock entitling the stockholder to receive current and unpaid prior-year dividends before common stockholders receive any dividends

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declaration date

answer

the date the board of directors formally authorizes the dividend and announces it to stockholders

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deficit

answer

a debit balance in retained earnings

question

dividend

answer

a distribution by a corporation to its stockholders on a pro rata (proportional to ownership) basis

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dividends in arrears

answer

preferred dividends that were supposed to be declared but were not declared during a given period

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legal capital

answer

the amount of capital that must be retained in the business for the protection of corporate creditors

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no-par value stock

answer

capital stock that has not been assigned a value in the corporate charter

question

outstanding stock

answer

capital stock that has been issued and is being held by stockholders

question

paid-in capital

answer

the amount stockholders paid in to the corporation in exchange for shares of ownership

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par value stock

answer

-capital stock that has been assigned a value per share in the corporate charter -often set at a random selected amount

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payment date

answer

the date cash dividend payments are made to stockholders

question

privately held corporation

answer

a corporation that has only a few stockholders and whose stock is not available for sale to the general public

question

publicly held corporation

answer

a corporation that may have thousands of stockholders and whose stock is traded on a national securities market

question

record date

answer

the date when the company determines ownership of outstanding shares for dividend purposes

question

retained earnings

answer

net income that a company retains in the business

question

retained earnings restrictions

answer

circumstances that make a portion of retained earnings currently unavailable for dividends

question

stated value

answer

the amount per share assigned by the board of directors to no-par stock

question

separate legal existence

answer

-a corporation is sperate from its owners and acts in its own name rather than in the name of its stockholders

question

limited liability of stockholders

answer

because of separate legal existence, creditors of a corporation have the option only to corporate assets to satisfy their claims, thus, the liability of stockholders is normally limited to their investment in the corporation

question

transferable ownership rights

answer

-ownership of a corporation is shown in shares of capital stock. -the shares are transferable units. -stockholders may sell their stock. -the transfer of ownership to another party is entirely at the discretion of the stockholder

question

which is better? c/s with par value of $5 or par value of $20

answer

-the relative par values should have no effect on the investment decision -par value has no effect on market value -market value depends on the companies anticipated future earnings, expected dividend rate per share, current financial position, current state of economy ect.

question

Fy Inc.'s common stock has a par value of $1 and a current market value of $15... explain why these amounts are different

answer

-par value is the legal amount per share which indicates the minimum amount a share of stock can be issued -market value is usually unrelated to par value... market value depends on things like companies expected future earnings, economy state, its current financial position ect.

question

the principal components of stockholders equity for a corporation are:

answer

paid-in capital and retained earnings

question

sustainable income

answer

-the most likely level of income to be obtained in the future. -It's the amount of regular income that a company can expect to earn from its normal operations -In order to distinguish a company's net income from its sustainable income, irregular items, such as a once-in-a lifetime gain or discontinued operations, are reported separately on the income statement.

question

extraordinary items

answer

events and transactions that meet two conditions: 1) unusual in nature 2) infrequent in occurrence

question

why is corporate management both a disadvantage and an advantage?

answer

-advantage: it can hire professional managers to run the company -disadvantage: it prevents owners from having an active role in directly managing the company

question

cumulative preferred stock

answer

preferred stockholders must be paid both current year dividends and unpaid prior year dividends before common stockholders receive any dividends

question

how are dividends in arrears presented in the financial statements?

answer

-dividends in arrears are disclosed in the notes to the financial statements

question

events that debit retained earnings

answer

-net loss -cash and stock dividends

question

events that credit retained earnings

answer

-net income

question

three dates associated with a companies cash dividend are may 1, may 15, may 31, what happens on each?

answer

-may 1: board of directors formally declares and announces the cash div. -may 15: is the record date which marks the time when ownership of outstanding shares is determined for dividend purposes from the stockholders' records -may 31: the date when the dividend checks are mailed to stockholders -accounting entries are made on may 1 and may 31

question

purpose of retained earnings restriction

answer

-is to indicate that a portion of retained earnings is currently unavailable for dividends

question

possible causes of retained earnings restrictions

answer

may result from legal, contractual, or voluntary

question

the corporation is an entity separate and distinct from its owners? (TorF)

answer

True

question

The liability of stockholders is normally limited to their investment in the corporation? (TorF)

answer

True

question

The relative lack of government regulation is an advantage of the corporate form of business? (TorF)

answer

False... additional government regulation is a disadvantage of the corporate form of business

question

There is no journal entry to record the authorization of capital stock? (TorF)

answer

True

question

No-par value stock is quite rare today? (TorF)

answer

No-par value stock is quite common today

question

effects of issuing common stock at par value

answer

-increase number of common shares outstanding -increase number of common shares issued -no effect to number of shares in treasury -increase dollar value in common stock account -no effect to in excess-c/s account $ amount -increase total paid in capital $ amount -no effect to retained earnings -increase asset accounts $ amount -increase $ value of total owner equity

question

effects of issuing common stock above par

answer

-increase number of common shares outstanding -increase number of common shares issued -no effect to number of shares in treasury -increase dollar value in common stock account -increase to in excess-c/s account $ amount -increase total paid in capital $ amount -no effect to retained earnings -increase asset accounts $ amount -increase $ value of total owner equity

question

effects of stock dividend

answer

-increase number of common shares outstanding -increase number of common shares issued -no effect to number of shares in treasury -increase dollar value in common stock account -increase to in excess-c/s account $ amount -increase total paid in capital $ amount -decrease to retained earnings -no effect to asset accounts $ amount -no effect to $ value of total owner equity

question

effects of cash dividend

answer

-no effect to number of common shares outstanding -no effect number of common shares issued -no effect to number of shares in treasury -no effect to dollar value in common stock account -no effect to in excess-c/s account $ amount -no effect to total paid in capital $ amount -decrease to retained earnings -decrease asset accounts $ amount -decrease $ value of total owner equity

question

effects of stock split (assuming there are treasury stock in account already)

answer

-increase number of common shares outstanding -increase number of common shares issued -increase to number of shares in treasury -no effect to dollar value in common stock account -no effect to in excess-c/s account $ amount -no effect to total paid in capital $ amount -no effect to retained earnings -no effect to asset accounts $ amount -no effect to $ value of total owner equity

question

effects of net income

answer

-no effect to number of common shares outstanding -no effect to number of common shares issued -no effect to number of shares in treasury -no effect to dollar value in common stock account -no effect to in excess-c/s account $ amount -no effect to total paid in capital $ amount -INCREASE OR DECREASE to retained earnings -INCREASE OR DECREASE asset accounts $ amount -INCREASE OR DECREASE $ value of total owner equity

question

effects of purchasing treasury stock

answer

-decrease number of common shares outstanding -no effect to number of common shares issued -increase number of shares in treasury -no effect to dollar value in common stock account -no effect to in excess-c/s account $ amount -no effect to total paid in capital $ amount -no effect to retained earnings -decrease asset accounts $ amount -decrease $ value of total owner equity

question

effects of sale of stock by 1 owner to another

answer

NOTHING... DOES NOT AFFECT ANYTHING

question

outstanding stock equation

answer

(# of shares issued) - (# of shares in treasury stock) = outstanding # of shares

question

dollar amount equation

answer

PV x # of shares issued= dollar amount in that account

question

issued stock equation

answer

(# of shares in treasury stock) + (# of shares outstanding) = (# of shares issued)

question

treatment for stock issued with a stated value is identical to.....

answer

that of stock issued with a PAR VALUE

question

how to calculate on average how much someone paid for common stock...

answer

(common stock+ inexcess in par common stock) / (# of shares issued)

question

three main types of net income

answer

-income from continuing operations -discontinued operations net of tax -extraordinary item net of tax

question

sharing the earnings to date (retained earnings) with owners is called....

answer

a dividend

question

dividends are only paid to...

answer

shares outstanding

question

if a company decides to give something just as "beneficial" as cash to its owners....

answer

it declares a distributes a stock dividend

question

stock dividend is the combination of...

answer

-cash dividend and a stock issuance

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