Accounting Chapter 13

Reasons to Repurchase Treasury Stock

1. Company wanted to influence price of stock 2. To attain shares needed for employe bonus 3. To increase earnings per share 4. To have additional shares on hand in acquisition of other companies

Three items on a Stock Certificate

1. Corporations Name 2. Stockholder's name 3. Number of Shares of stock owned by stockholder

What are the three dates for Cash Dividends?

1. Declaration Date 2. Record Date 3. Payment Date

What are the two basic sources for Stockholders' equity? Describe each.

1. Paid-in Capital: amounts received from the stockholders in exchange for stock 2. Retained Earnings: equity earned by profitable operations that is not distributed to stockholders

Stockholders' Rights (4)

1. Vote: voting on corporate matters 2. Dividends: distribution of corporations earnings to stockholders 3. Liquidation: Stockholders receive their proportion of any remaining assets if the company goes out of business 4. Preemptive right: stockholders have the right to purchase their proportion of stocks if the company issues new shares. I.e if stockholders own 5% of a corporations stock then if the company issues 100,000 new shares 5,000 must first be afford to he previous stockholders

Par Value

An amount assigned by a company to a share of its stock

Which characteristic of a corporation is a disadvantage? A. Mutual agency B. Double Taxation C. Limited Liability D. None

B. Double Taxation

Advantage of Corporation

Can raise more money Continuous life Easy transfer of ownership Stockholders have limited liability

What is the journal entry for the Declaration Date?

Cash dividend Dividend Payable

Types of Stock and characteristics

Common Stock: Basic Ownership Preferred Stock: Has priority over common stock holders, receiving dividends 1st and assets 1st at liquidation

Assume that a company paid $6 per share to purchase 1,100 shares of its $3 par common stock as treasury. The purchase of treasury stock

Decreased total equity by $6,600

What is the journal entry for the Payment Date?

Dividend Payable Cash

cumulative preferred stock

Dividends cannot be paid to common stockholders before dividends are paid to preferred stockholders; preferred stockholders receive Dividends in Arrears (past years dividends if not already given) and current years dividends

non-cumulative preferred stock

Dividends not paid in the past will never be paid to the stockholder

If common stock is issued in exchange for a building, the building should be recorded at

Its market value

What is the journal entry for the Record Date?

None

What account is used to record the premium when issuing common stock? What type of account is this?

Paid in Capital in Excess of Par - Common; paid-in capital account

The two basic sources of stockholders' equity are

Paid-in capital and retained earnings

Stock Certificate

Representation of stockholder's ownership

Capital Stock

Represents the individual's ownership of the corporation's capital.

Treasury Stock

Stock a company has issued and repurchased

Stock Dividends affect ___________

Stock dividends only affect stockholders' equity accounts ( Retained Earnings, Stock Dividends, Common Stock...) The have no effect on total stockholders' equity, assets or liabilities

Issued Stock

Stock that has been issued but may or may not be held by stockholders.

Who declares dividends?

board of directors

Disadvantages of a corporation

double taxation ownership and management separate Expansion Gov't regulation High start up cost

Authorized Stock

the amount of stock that a corporation is authorized to sell as indicated in its charter