accounting chapter 10 stockholders equity

advantages of a corporation

1. limited liability 2. the ability to raise capital and transfer ownership

primary components of stockholders equity

1. paid in capital 2. retained earnings 3. treasury stock

stockholders rights

1. right to vote 2. right to receive dividends 3. right to share in the distribution of assets if the company is dissolved

angel investors

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

disadvantages of a corporation

additional taxes more paperwork

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 , bigger companies ( walmart)

common stock

authorized stock issued stock outstanding stock treasury stock

common stock

basic form of stock shareholders benefit most if corporation succeeds but take more risk

if corporation has no other stock it is usually classified as

common stock

no par value stock

common stock that has not been assigned a par value

preferred stock can be

convertible : shares can be exchanged for common stcok redeemable : share can be returned to the corporation at a fixed price cumulative : shares receive priority for future dividends if dividens are not paid in a given year

double taxation

corporate income is taxed once on earnings at the corporate level and again on dividends at the individual level

additional taxes

corporations have double taxation

payment date

date of the actual cash distribution

delcaration date

date on which board of directors declares the cash dividend to be paid

dividends payable is recorded as credit on the

declaration date

retained earnings and dividends

decreased by dividends

dividends

distribution to the shareholders of a corporation usually based on earnings a company not obligated to pay dividends even if preferred, unless it is declared by a board of directors types of dividends cash ( common stock and preferred stock) stock other assets

privately held corporation

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

retained earnings sometimes called

earned capital

retained earnings

earnings retained in the corporation and not paid out as dividends EQUALS ALL NET INCOME LESS ALL DIVIDENDS, SINCE THE COMPANY BEGAN OPERATIONS has normal credit balance its called accumulated deficit if losses

Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:

first right to specified amount of dividends preference in distribution of assets during dissolution of corporation

preferred stock

has advantages over common stock they receive dividends first and receive assets first in liquidation shareholders earn a fixed dividend it is less common than common stock and less risky than common stock no voting rights

preferred stockholders

have the right to receive dividends only in the years the board of directors declares dividends.

retained earnings and net income

increased by net income

line of agreements

informal agreement which allows companies to borrow money up to a prearranged limit

The amount of money paid into a company by its owners is referred to as

invested capital

treasury stock

is a company´s own issued stock that it has repurchased

paid in ( invested) capital

is the amount stockholders have invested in the company

treasury stock

is the number of issued shares repurchased by the company

treasury stock is what account and does what to stockholders equity

it is a contra equity account and reduces stockholders equity

what will decrease the par value of shares

large stock dividends

stock of a publicly held corporation trades on

nyse (walmart ) nasdaq ( tech companies) otc

ability to raise capital and transfer ownership

ownership rights are easily transferred

par value vs market value

par value is the legal capital per share that is set when the corporation is first established and is unrelated to value. the market value per share is equal to the current share price

venture capital firms

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

a company´s past profits that are not paid out in dividends are

retained earnings

earned capital increases

retained earnings

authorized stock

share available to sell ( issued + unissued)

who owns and controls a corporation

shareholders

issued stock

shares actually sold ( = outstanding + treasury )

outstanding stock

shares issued and held by investors , only these shares receive dividends

the articles of incorporation

sometimes called corporate charter it describes 1. the nature of the firm´s business activites 2. the shares of stock to be issued 3. the initial board of directors

record date

specific date on which the company will determine who will receive the dividend

preferred stock

stock with preference over common stock in the payment of dividends and the distribution of assets

organization chart

stockholders board of directors ceo then vice pres cfo all that

what accounts are common stock and additional paid in capital

stockholders equity accounts

limited liability

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

invested capital

the amount of money paid into a company by its owners

retained earnings

the earnings not distributed in dividends to stockholders over the lief of the company

initial public offering

the first time a corporation issues stock to the public

par value

the legal capital assigned per share of stock , par value has no relationship to the market value of the common stock

the number of shares outstanding equals

the number of shares issued minus the number of shares in treasury

Historically, par value was considered to be

the value of the company's shares of stock.

companies buy back their own stock for various reasons

to boost underpriced stock to distribute surplus cash without paying dividends to boost earnings per share to satisfy employee stock ownerahip plans

more paperwork

to protect the rights of those who buy a corporation´s stock or who lend money to a corporation