Accounting Chapter 10

The owner of one or more shares of stock

stockholder

What are the responsibilities of a corporation's board of directors?

A board of directors determines corporate policies and selects corporate officers to supervise the day-to-day management of the corporation

In place of a general ledger capital account for each owner, how does a corporation show stock ownership?

A single summary general ledger capital account is used for each kind of stock issued

What is the relationship between an investor's desired dividend rate and the price at which a preferred stock is issued?

An investor willing to accept a dividend rate lower than that offered by the preferred stock will pay more than the par value. An investor demanding a dividend rate higher than that offered by the preferred stock will pay less than the par value.

A group of persons elected by the stockholders to govern a corporation

Board of Directors

How can a business issue stock without causing the voting rights of current common stockholders to be diminished?

By issuing preferred stock that does not offer voting rights.

To finance rapid expansion, how can a corporation acquire additional capital?

By selling stock to investors or borrowing money.

The legal right for a business to conduct operations as a corporation

Charter

What two basic kinds of stock may a corporation issue?

Common and preferred.

The taxation of earnings to the corporation and to the stockholders when they receive dividends

Double Taxation

double taxation is a disadvantage of an LLC

False

The initial issue of security on a public exchange

Initial public offering

A form of business organization that offers its owners (known as members) The limited liability afforded to corporate stockholders

Limited Liability corporation

Must all corporations file their financial statements with the SEC?

No. Only publicly held corporations are required to file their financial statements with the Securities and Exchange Commission.

A corporation owned by a small number of individuals

Privately held corporation

Why does a conversion option add value to preferred stock?

The conversion option enables the corporation to issue the stock with a lower dividend rate. Convertible preferred stock gives the stockholder the ability to share in the income of the corporation through an increase in the market price of the common stock.

No-par value stock that is assigned a value by a corporation

Stated-value Stock

Written evidence of the number of shares each stockholder owns in a corporation

Stock certificate

A 6% $100.00 par-value preferred stock has a conversion ratio of 10. The corporation's common stock is currently valued at $12.00. Should preferred stockholders convert their stock?

Stockholders should convert their stock if they believe the market price of the common stock will increase by more than per year, less the effect of any dividends paid on common stock.

What are the three steps necessary to receive a charter

Submit an application to the state in which the company is to be incorporated. Prepare an articles of incorporation. Organize a board of directors.

How are the earnings of a corporation subject to double taxation?

The earnings of a corporation may be subject to federal and state income taxes. When the earnings of the corporation are distributed to the stockholders, individual stockholders may also have to pay income taxes on the dividends.

How does a limited liability corporation differ from a traditional corporation?

The earnings of an LLC are divided among its members. The earnings are only taxed on the members' personal tax returns.

What is the most significant advantage of a corporation over a proprietorship or partnership?

The extent to which the owner is responsible for the debts, taxes, and losses of the business.

What three basic rights do stockholders usually have?

To vote at stockholders' meetings, unless an exception is made for holders of a particular kind of stock. To share in a corporation's earnings. To share in the distribution of the assets of the corporation if it ceases operations and sells all its assets.

The annual report a publicly held corporation submits to the SEC is the 10-k

True

The initial issue of a security on a public exchange is known as an IPO

True

A legal Document that identefies basic characteristics of a corporation, part of the application submitted to the state

articles of incorporation

The ability of a security to be traded for a specefied number of shares for another security

conversion option

The par or stated value of preffered stock divided by the conversion ratio

conversion price

The number of shares of common stock recieved when a security is converted

conversion ratio

prefferd stock that can be exchanged for a specific number of common shares

convertable prefferd stock

Changing ownership of stock is know as the stock certificate

false

Investers demanding a dividend rate higher than than that offered by the preffered stock will be paying more than par value

false

The payment of dividends on preffered stock is guarenteed by the board of directors

false

A share of stock that has par value

par-value stock

A class of stock preferred shareholders preferrence over common shareholders in dividends along with other rights

preferred stock

A corporation having stock traded on public exchanges

publicly held corporation

The document submitted to the SEC for permission to sell a security on a public exchange

registration statement

100 par value with a conversion ratio of 20 has a conversion price of 5

true

A conversion option adds value to the preferred stock and enables the corporation to issue the stock with a lower dividend rate

true

The credit to the capital stock account of no-par common stock equals the total cash or other assets received

true

When par value or stated value stock is sold, the credit to the capital account will always equal the total par or stated value of the stock issue

true