ACC 210 Chapter 10
limited liability
guarantees that stockholders in a corporation can lose no more than the amount they invested in the company, even in the event of bankruptcy
no change, no change
how is total equity affected by stock splits/stock dividends?
5,000
if 100,000 shares of stock are currently outstanding, and the company declares a 5% stock dividend, how many additional shares will it be distributing?
treasury stock
if the # of issued and outstanding shares differs, then there is _______ __________
lost/gone
if the preferred stock is noncumulative, any dividends in arrears are _____
stated value
in some cases, a corporation assigns a ______ ________ to the shares. This is treated and recorded in the same manner as par value shares.
stock splits
increase in the number of shares that are issued in outstanding and a decrease in par value; this makes market price go down -no entry for this, will make a memorandum (note)
increase liabilities, decrease equity
increase/decrease on the acc equation: declare cash dividends
debit cash 30,000 credit CS at stated value 10 Credit additional paid in capital 29,990
a business issues 1000 shares at $.01 stated value common stock at $30 per share. How do we record this transaction?
increase assets, increase equity
increase/decrease on the acc equation: issue common stock
increase assets, increase equity
increase/decrease on the acc equation: issue preferred stock
decrease assets, decrease liabilities
increase/decrease on the acc equation: pay cash dividends
decrease assets, decrease equity
increase/decrease on the acc equation: purchase treasury stock
increase assets increase equity
increase/decrease on the acc equation: reissue treasury stock
venture capital firms
provide additional financing for a percentage ownership in the company; look to invest in promising companies where they can add value through business contacts, financial expertise, or marketing channels
book value of equity
the total stockholders' equity reported in the balance sheet
large stock dividend
-more than 25% of the outstanding shares -valued at par
debit legal fees expense 30,000 credit CS at par value 10 credit additional paid in capital 29,990
1000 shares of $.01 par value CS at at $30 per share of CS were issued to an attorney in payment for $30,000 in legal services
preemptive right
CS has ______ _______ or first dibs on the new stock. preferred does not have this.
debit cash credit common stock
a business issues 1,000 shares of no-par value common stock at $30 per share. How do we record this transaction? (don't put numbers)
debit cash 2,500 (100 x 25) debit additional paid in capital 500 credit treasury stock (100 x 30)
a business repurchases 100 shares of its own $.01 par value CS at $30 per share. They reissue the 100 shares of treasury stock for $25. How do we record this?
debit cash 3,500 (100 shares x 35) credit treasury stock 3,000 (100 shares x 30) additional paid in capital 500
a business repurchases 100 shares of its own $.01 par value CS at $30 per share. They reissue the 100 shares of treasury stock for $35. How do we record this?
accumulated deficit
a debit balance in RE; if losses exceed income since the company began.
S corporation
allows a company to have limited liability as a corporation, but tax treatment as a partnership. The corporation cannot have more than 100 stockholders
convertible
allows the stockholder to exchange shares of preferred stock for common stock at a specified conversion ratio
no-par value stock
common stock that has not been assigned a par value; laws in most states permit corporations to issue this.
double taxation
corporations have ______ ________: as a legal entity separate from its owners, a corporation pays income taxes on its earnings. When it distributes the earnings to stockholders in dividends, the stockholders pay taxes on the dividends they receive.
investors in bonds
creditors who have loaned money to the corporation
articles of incorporation
describes the nature of the firm's business activities, the shares of stock to be issued, and the initial board of directors; sometimes called a corporate charter
declared
dividends are not a liability until they are _______ by the board of directors
shares outstanding
dividends are paid only on _____ ________
privately held corporation
does not allow investment by the general public and has fewer stockholders than a public corporation; do not need to file financial statements with the SEC; most companies begin as this
price earnings ratio
indicates how the stock is trading relative to current earnings -ranges 15-20 -a high ratio indicates the market has high hopes for a company's stock and has bid up the price -a low ratio indicates that a stock is priced low in relation to its current earnings
notes to the financial statements
info regarding any dividends in arrears is disclosed in the
authorized-unissued=issued shares
issued shares equation
(ending stock price) (number of shares outstanding)
market value of equity equation
return on equity
measures the ability of company management to generate earnings from the resources that owners provide
earnings per share
measures the net income earned per share of CS
preferred stock
no voting rights, first rights to a specified amount of dividends before CS, receives preference over CS in the distribution of assets if the corporation is dissolved
debit dividends 500 (2000 shares x .25) credit dividends payable 500
on march 15 a business declares .25 per share dividend on its 2,000 outstanding shares-1000 shares of CS and 1000 shares of preferred. how do we record the declaration of cash dividends?
net income/average stockholders' equity
return on equity equation (will be higher than return on market value of equity)
net income/market value of equity
return on the market value of equity equation (will be lower than return on equity)
publicly held corporation
stock in a corporation is traded on the new york stock exchange, NASDAQ, and the OTC. These corporations are regulated by the SEC so they have additional reporting/filing requirements
paid in capital, RE, treasury stock
stockholders' equity consists of 3 classifications....
value stocks
stocks that are priced low in relation to current earnings; poor future prospects
growth stocks
stocks whose future earnings investors expect to be higher; their stock prices are high in relation to current earnings because investors expect future earnings to be higher
stockholders' equity, balance sheet
the # of authorized, issued, and outstanding shares is reported in the _________ __________ section of the _______ ___________.
invested capital
the amount of money paid into a company by its owners
debit dividends payable credit cash
to record the payment of cash dividends...
debit
treasury stock is included in the stockholders' equity section of the balance sheet with a ______ balance
dividends in arrears
unpaid dividends
stock dividend
the company distributes additional stock to their stockholders rather than cash -decreases RE, doesn't affect cash -stated as a percentage of the current outstanding number of shares
treasury stock
the corporation's own stock that it is reacquired, repurchased shares -included as part of shares issued, but excluded from shares outstanding
market value per share
the current share price
payment date
the date of the actual cash distribution in the form of a dividend
declaration date
the day that the board of directors declares the cash dividend to be paid (increase dividends, increase dividends payable)
initial public offering (IPO)
the first time a corporation issues stock to the public is called an
redeemable
-a feature of preferred; shares can be returned to the corporation at a fixed price -at the option of either stockholders or the corporation
debit cash 30,000 credit CS at par value 10 credit additional paid in capital 29,990
a business issues 1000 shares at $.01 par value common stock at $30 per share. How do we record this transaction?
debit treasury stock 3,000 credit cash 3,000 (par value has no effect on treasury, we record it at its cost)
a business repurchases 100 shares of its own $.01 par value CS at $30 per share. How do we record this?
increased by paid in capital/ RE, decreased by treasury stock
does paid in capital, RE, and treasury stock decrease or increase stockholders' equity?
(net income-dividends on preferred stock)/average shares of CS outstanding
earnings per share equation
board of directors
establishes corporate policies and appoints officers who manage the corporation ; appoints the management to run the company. Declares dividends
bonds, preferred, CS
for stocks, what is the order of preference for dividends?
bonds, preferred, CS
for stocks, what is the order of preference in distribution of assets?
bonds
for stocks, which has a tax deductibility of payments?
seasoned equity offerings (SEOs)
future stock issues by the company after the initial public offering are called
issued stock
have been issued at least once; the number of shares that have been sold to investors; a company doesn't usually issue all of its authorized stock (shares actually sold)
debit cash credit preferred stock credit additional paid in capital
how do we record the transaction of the the issuance of preferred stock? (credit/debit)
no change, increase
how is common stock affected by stock splits/stock dividends?
decrease, no change
how is par value per share affected by stock splits/stock dividends?
no change, decrease
how is retained earnings affected by stock splits/stock dividends?
issued-treasury stock=outstanding shares
outstanding shares equation
cumulative
preferred stock is usually ___________; if the specified dividend is not paid in a given year, unpaid dividends (dividends in arrears) accumulate, and the firm must pay them in a later year before paying any dividends on CS
stock price/earnings per share
price earnings ratio equation
retained earnings
the amount of earnings the corporation has kept or retained-earnings not paid out in dividends; also called earned capital-the amount the company has earned for the stockholders
paid in capital
the amount stockholders have invested in the company; also called invested capital-the amount stockholders invest when they purchase a company's stock
record date
the board of directors indicates a specific date on which the company will determine the registered owners of stock and therefore who will get the dividend -investors who own stock on this date is entitled to get a dividend -there is no entry
automatic dividend reinvestment
the investor does not receive dividends directly as cash; instead, their dividends are directly reinvested into more shares of the company. This allows the investment to grow at a faster rate
par value
the legal capital per share of stock that's assigned when the corporation is first established (the nominal value of a bond). -has no relationship to the market value of the common stock
outstanding stock
the number of shares currently held by investors (shares held by investors; excludes treasury stock)
authorized, issued, outstanding
the number of shares of common stock in a corporation are described as being _________ ___________ _____________.
market value of equity
the price investors are willing to pay for a company's stock
authorized stock
the total number of shares available to sell, stated in the company's articles of incorporation. -not recorded in the accounting records but required to disclose it in the financial statements
reverse stock split
they want market price to go up so 1:2 stock split
angel investors
wealthy individuals in the business community willing to risk investment funds on a promising business venture
fair market value
what is a small stock dividend valued at?
debit treasury stock credit cash
when a corporation repurchases its own stock, what debit/credit accounts are effected?
property dividend
when a non cash asset is distributed to stockholders as a dividend
total paid in capital-accumulated deficient=total stockholders' equity
when there is an accumulated deficit, how do we find stockholders' equity?
CS
which stock has the highest expected return to the investor?
CS
which stock yields the highest risk to the investor?
corporation's stockholders (voting, makeup the board of directors)
who controls the company in an organization?
CS, bonds
who has voting rights?
