Accounting Chap 11

The corporate charter of Gage Corporation allows the issuance of a maximum of 100,000 shares of common stock. During its first 2 years of operation, Gage sold 70,000 shares to shareholders and reacquired 4,000 of these shares. After these transactions, how many shares are authorized, issued, and outstanding?

Authorized- 100,000; Issued- 70,000; Outstanding- 66,000

Indicate how each of these accounts should be classified in the stockholders' equity section of the balance sheet: Common stock; Paid-in Capital in Excess of Par Value; Retained Earnings; Treasury Stock; Paid-in Capital in Excess of Stated Value; Preferred Stock

Common Stock- paid-in capital-- capital stock; Paid-in Capital in Excess of Par Value capital- Paid-in capital-- additional paid-in; Retained Earnings- retained earnings; Treasury Stock- Deducted from total paid-in capital and retained earnings; Paid-in Capital in Excess of Stated Value capital- Paid-in capital-- additional paid-in; Preferred Stock- Paid-in Capital-- capital stock

A corporation has been defined as an entity separate and distinct from its owners. In what ways is a corporation a separate legal entity?

Legally, a corporation is an entity, separate and distinct from its owners. As a legal entity, a corporation possesses most of the privileges and is subject to the same duties and responsibilities as a natural person. The corporation acts under its own name rather than the names of its stockholders. A corporation may buy, own, and sell property, borrow money, enter into legally binding contracts, and sue or be sued.

What are the two principal components of stockholders' equity?

Paid-in capital and retained earnings

Explain each of these: Separate Legal Existence; Limited Liability of Stockholders; and Transferable Ownership Rights

Separate Legal Existence- a corporation is separate and distinct from its owners and it acts in its own name rather than in the name of its stockholders. Limited Liability of Stockholders- creditors of a corporation ordinarily have recourse only to corporate assets to satisfy their claims; Transferable Ownership Rights- shown in shares of capital stock, they are transferable units. Stockholders may dispose of part or all of their interest by simply selling their stock

For what reasons might a company like IBM repurchase some of its stock (treasury stock)?

To reissue the shares to officers and employees under bonus and stock compensation; To increase trading of the company's stock in the securities market in hopes of enhancing its market value; To have additional shares available for use on the acquisition of other companies; To reduce the number of shares outstanding and increase earnings per share; or to avoid a takeover of the company by investors that are hostile to management

What are the basic ownership rights of common stockholders in the absence of restrictive provisions?

Vote in the election of the board of directors and in corporate actions that require stockholders' approval. Share in corporate earnings. Maintain the same percentage ownership when additional shares of common stock are issued. Share in assets upon liquidation