ACC 210 Chapter 10

Double Taxation

A corporation pays income taxes on its earnings, and when dividends are distributed to stockholders, the stockholders pay taxes a second time on the corporate dividends they receive.

Treasury Stock

A corporation's own stock that it has reacquired.

Accumulated Deficit

A debit balance in Retained Earnings.

Stock split

A large stock dividend that includes a reduction in the par or stated value per share.

Record Date

A specific date on which the company will determine the registered owners of stock and, therefore, who will receive the dividend.

Stock Dividends

Additional shares of a company's own stock given to stockholders.

S Corporation

Allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership

Publicly Held Corporation

Allows investment by the general public and is regulated by the Securities and Exchange Commission.

No-Par Value Stock

Common stock that has not been assigned a par value.

Articles of Incorporation

Describes the nature of the firm's business activities, the shares to be issued, and the composition of the initial board of directors.

Dividends

Distributions by a corporation to its stockholders.

Privately Held Corporation

Does not allow investment by the general public and normally has fewer stockholders.

Earnings per Share

Measures the net income earned per share of common stock.

Return on equity

Net income divided by average stockholders' equity; measures the income generated per dollar of equity

Return on the market Value of Equity

Net income divided by the market value of equity.

Venture Capital firms

Provide additional financing, often in the millions, for a percentage ownership in the company.

Retained Earnings

Represents all net income, less all dividends, since the company began.

Stockholder Rights

Right to Vote Right to Receive Dividends Right to Share in the Distribution of Assets

Convertible

Shares can be exchanged for common stock.

Redeemable

Shares can be returned to the corporation at a fixed price.

Cumulative

Shares receive priority for future dividends, if dividends are not paid in a given year.

Preferred Stock

Stock with preference over common stock in the payment of dividends and the distribution of assets. Preferred stockholders usually have first rights to a specified amount of dividends (a stated dollar amount per share or a percentage of par value per share). If the board of directors declares dividends, preferred shareholders will receive the designated dividend before common shareholders receive any. Preferred stockholders receive preference over common stockholders in the distribution of assets in the event the corporation is dissolved.

Limited Liability

Stockholders in a corporation can lose no more than the amount they invested in the company.

Value Stocks

Stocks that have lower share prices in relationship to their fundamental ratios and therefore trade at lower (bargain) PE ratios.

Growth Stocks

Stocks that tend to have higher price-earnings ratios and are expected to have higher future earnings.

Statement of stockholders' equity

Summarizes the changes in the balance in each stockholders' equity account over a period of time

Paid-in Capital

The amount stockholders have invested in the company.

Payment Date

The date of the actual cash distribution of dividends.

Declaration Date

The day on which the board of directors declares the cash dividend to be paid.

Property Dividend

The distribution of a noncash asset to stockholders.

Initial Public Offering

The first time a corporation issues stock to the public.

Par Value

The legal capital assigned per share of stock.

Stated Value

The legal capital assigned per share to no-par stock.

Outstanding Stock

The number of shares held by investors; excludes treasury shares.

Issued Stock

The number of shares sold to investors; includes treasury shares.

Additional Paid-In Capital

The portion of the cash proceeds above par value.

Price-Earnings Ratio

The stock price divided by earnings per share so that both stock price and earnings are expressed on a per share basis

Authorized Stock

The total number of shares available to sell, stated in the company's articles of incorporation.

Why Corporations Repurchase their Stock

To Boost Underpriced Stock To distribute surplus cash without paying dividends To boost earning per share To satisfy employee stock ownership plans

Organization Chart

Traces the line of authority within the corporation.

Dividends in Arrears

Unpaid dividends on cumulative preferred stock.

Angel Investors

Wealthy individuals in the business community willing to risk investment funds on a promising business venture