Accounting Exam 2: Statement of Stockholders Equity
Corporations are more ___________ and __________________ to form compared to other forms of business such as sole proprietorships and partnerships
costly complex
what is the advantage to a corporation?
it has access to greater amounts of capital than a sole proprietor or partnership
a corporation is a _______________ entity organized under a ____________ charter
legal state ( or article of incorporation)
with preferred stock owners have ________________ than common stock owners
less rights
preferred stock owners have lower ____________ in comparison to common stockholders
lower risk (because they will be paid before common stock)
how to calculate paid in capital in excess of par
market value - par value
convertible preferred stock
may be exchanged for common stock after a certain date
callable preferred stock
may be repurchased by company at a preset price after a specific date
stock split
means of increasing the number of shares that are outstanding and reducing the par value on a pro rated basis
Do all companies offer preferred stock?
no. preferred stock may be offered by some companies but not all
Disadvantages of a corporation
owners pay taxes on dividends received from the corporation even though the corporation pays taxes on the income it earns
what increases stockholders equity?
paid in capital earned capital
when a dividend is quoted or based as a percent it is based on the ____________________ of the stock
par value
what decreases stockholders equity?
paying dividends purchasing treasury stock
dividends on preferred stock may be quoted as a __________________ or as a _________________ amount
percent dollar
cumulative preferred stock
periodic dividends not paid continue to accumulate as payable to stockholder
preferred stock dividends is based on a ______________ amount preprinted on stock certificate
predetermined
what are two types of corporations?
public and private
when a company repurchases its own stock (treasury stock) it is going to _________________ the total stockholders equity
reduce
Treasury stock
shares of stock of a companies own stock that it has repurchased or reacquired and it has purchased it from an existing stockholder at the market price if the owners are willing to sell it
Authorized Shares
shares that are legally available for sale (set in the companies charter)
stock dividend
a non cash return on equity that gives stockholders incremental shares of stock (giving them additional shares)
What is the statement of stockholders equity?
a statement that reflects the changes in equity for the owners interest for a period of time and ending the balance at a point in time
why would a company decide to offer preferred stock?
a strategic consideration
par value
a value assigned to a share of stock issued by a company in the articles of incorporation
what are dividends
dollars paid to stockholders
what is paid- in capital
dollars that the company has received in exchange for stock
what is it called when in a corporation owners pay taxes on dividends received from the corporation even though the corporation pays taxes on the income it earns?
double taxation
retained earnings
net income that is NOT distributed (as dividends) to owners
a corporation is considered a _______________ entity from its _________ ( not a pass-through entity)
seperate owners
outstanding shares
shares that have been issued and are still in the stockholders hands (not repurchased by the company)
Issued shares
shares that have been sold
treasury shares
shares that were sold at one point and then were repurchased by the company on the open market
why is this statement needed?
so that stockholders can see how their equity has changed over a period ( how it has increased or decreased)
Statement of stock holders equity reports what three parts?
1. changes in paid in capital from issuance of new shares of stock (when a company sells stock) 2. changes in treasury stock transactions (repurchases stock) 3. changes in retained earnings (increase/decrease) based on a net income or a net loss
what are the two types of stock?
1. common stock 2. preferred stock
two types of dividends
stock cash
preferred stock has..
has special privileges, no voting rights, usually offers guaranteed dividends
common stock has....
has voting rights, higher risk because they are paid last in dissolution, no guaranteed dividends
what are the three types of preferred stock?
1. convertible 2.cumulative 3. callable
what are the three dates involved with paying dividends?
1. date of declaration: date that the BOD declares it will be paid (liability created) 2. date of record: the recipient is determined based on stock ownership 3. date of payment: dividend is paid (cash is decreased)
what are the two categories of capital that a company has access to?
1. paid in (or contributed) capital 2. earned capital that is retained by a company
what 5 rights do stockholders have?
1. the right to vote on corporate matters (if common stock) 2. right to participate in profits (dividends) 3. right to residual assets after creditors (assets - liabilities= equity) 4. preemptive right to purchase of new issues of shares 5. Have limited liability- loss up to stock investment
cash dividend
a cash return on equity investment that gives stockholders cash
how does a company receive capital?
at its initial issuance of stock to the public and re-sales of its own stock (treasury stock) that the company purchased from the exchange
IPO (initial public offering)
The first time a company sells shares of its stock to the public. typically large gains for investors when they buy in at that initial public offering
Market value
amount investors are willing to pay for a share of stock
how do you calculate equity?
assets - liabilities = equity
preferred stock usually has a ________________ dividend amount
fixed or garunteed
what is a stockholder?
someone who owns shares of stock in a company (buying ownership into that company)
what does it mean if a corporation is private?
stock is privately traded
what does it mean if a corporation is public?
stock is publicly traded on a stock exchange
With treasury stock a buyback is usually _______________
strategic. There is a reason they want it back
what is earned capital and what is it also called
the accumulated net income from operating the business that is not distributed to stockholders as dividends retained earnings
paid-in capital in excess of par
the amount investors are going to pay above that par value
when are dividends paid?
they are only paid when the board of directors declare it
at the end of each accounting period, the dividend account is going to be ____________________ and reset for the next year
zeroed out