Chapter 13 Corporations: Organization, Stock Transactions, and Dividends

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Corporation
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A business organized under state or federal statutes as a separate legal entity; distinct and separate form the individuals who create and operate it
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Stock
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Shares of ownership of a corporation
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Stockholders (shareholders)
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Those who own the stock and the corporation; can buy and sell stock without affecting the corporation’s operations or continued existence
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Public corporations
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Corporations whose shares of stock are traded in public markets
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Nonpublic or Private Corporations
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Corporations whose shares aren’t traded publicly and are usually owned by a small group of investors
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Limited liability
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Creditors usually may not go beyond the assets of the corporation to satisfy their claims; the financial loss that a stockholder may suffer is limited to the amount invested
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Board of directors
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Elected to control a corporation by the stockholders; meets periodically to establish corporate policies
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Application of incorporation
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First step in forming a corporation; you file this with the states
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Charter or Articles of incorporation
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Second step in forming a corporation; formally create the corporation
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Bylaws
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The rules and procedures for conducting the corporation’s affairs
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Stockholder’s equity
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The owners’ equity in a corporation
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Paid-in capital
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Capital contributed to a corporation by the stockholders and others
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Retained earnings
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Net income retained in a corporation
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Dividends
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Distribution of a corporation’s earnings to stockholders
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Deficit
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A debit balance in the retained earnings account
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Outstanding stock
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The stock in the hands of stockholders
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Par value
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The monetary amount printed on a stock certificate
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No-par stock
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Stock issued without par
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Legal capital
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Minimum amount of paid-in capital that states require corporations to maintain
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Common stock
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The stock outstanding when a corporation has issued only 1 class of stock
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Preferred stock
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A class of stock with preferential rights over common stock
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Cumulative preferred stock
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Stock that has a right to receive regular dividends that were not declared (paid) in the prior years
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In arrears
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Cumulative preferred stock dividends that have not been paid in prior years
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Premium
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The excess of the issue price of a stock over its par value
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Discount
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The interest deducted from the maturity value of a note
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Cash dividend
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A cash distribution of earnings by a corporation to its shareholders
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Date of declaration
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The date the board of directors formally authorizes the payment of the dividend; The corporation incurs the liability to pay the amount of the dividend
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Date of record
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The date the corporation uses to determine which stockholders will receive the dividend
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Date of payment
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The date the corporation will pay the dividend to the stockholders who owned the stock on the date of record
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Stock dividend
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A distribution of shares of stock to its stockholders
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Treasury stock
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Stock that a corporation has once issued and then reacquires
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Retained earnings statement
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A summary of the changes in the retained earnings in a corporation for a specific period of time, such as a month or a year
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Restrictions (appropriations)
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Amounts of retained earnings that have been limited for use as dividends
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Prior period adjustments
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Corrections of material errors related to a prior period or periods, excluded from the determination of net income
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Statement of stockholders’ equity
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A summary of the changes in the stockholders’ equity in a corporation that have occurred during a specific period of time
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Stock split
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A reduction in the par or stated value of a common stock and the issuance of a proportionate number of additional shares

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