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