ACT210 Chapter 10

In retained earnings, if losses exceed income since the corporation began, retained earnings will have a debit balance and is called __________.

accumulated deficit

Preemptive right:

allows a stockholder to maintain his or her percentage share of ownership.

If a corporation has only one kind on stock, it is usually labeled as ___________.

common stock

Treasury stock is reported as a __________.

contra equity

Declaration date:

date on which the dividend is declared

Venture capital firms:

provide additional financing for a percentage of ownership in the corporation

Disadvantages of a corporation:

Additional taxes, more paperwork

Retained earnings:

Amount of earnings the corporation has retained - earnings not paid out as dividends to stockholders.

Paid-in capital:

Amount stockholders have invested in the corporation

Stockholders Equity=

Assets-Liabilities

No par value:

Common stock that has not been assigned a par value

Authorized stock-unissued stock=

Issued stock

Advantages of a corporation:

Limited liability, ability to raise capital, lack of mutual agency

Issued stock-Treasury stock=

Outstanding stock

_________ equals all net income, less all dividends, since the corporation began. Has a normal credo balance consistent with other stockholders equity accounts.

Retained Earnings

Outstanding stock:

Shares held by investors (excludes treasury stock)

Cumulative stock:

Shares receive priority for future dividends, if dividends are not paid in a given year

When a corporation repurchases its own stock, it ________, or ______ treasury stock and vice versa when it sells.

increases;debits

A contra equity is a ______ equity account.

negative

Initial public offering (IPO):

the first time a corporation issues stock to the public

Payment date:

Date on which the cash dividend is paid.

Stated value:

Treated in the same manner as par value shares

Preferred Stock:

Usually have first rights to a specified amount of dividends. Receive preference over common stockholders in the distribution of assets in the event that the corporation is dissolved.

Primary sections of stockholders equity:

Paid in capital, retained earnings, and treasury stock

Whether public or private, stockholders are owners of the corporation and have certain rights:

Right to vote, receive dividends, share in distribution of assets, preemptive right

Issued stock:

Shares actually sold (includes treasury stock)

Authorized stock:

Shares available to sell (issued and unissued)

Convertible stock:

Shares can be exchanged for common stock

Redeemable stock:

Shares can be returned to the corporation at a fixed price

Public Corporation:

Stocks trade on a stock exchanges such as NYSE, AMEX, NASDA, or by over the counter (OTC) trading. Regulated by the SEC. EX: Walmart, Microsoft, Intel

Par Value:

The legal capital per share of stock that's assigned when the corporation is first established. Has no significant meaning today, has no relationship to the market value of common stock.

Articles of incorporation describe:

The nature of the firms business activities, the shares to be issued, the initial board of directors

Why corporations repurchase their stock:

-Boost under-priced stock -To distribute surplus cash without paying dividends -Boost earning per share -To offset insurance of shares under stock based compensation plans

The progression leading to a public offering might include some or all of these steps:

-investment by the founders of the business -investment by the friends and family of the founders -outside investment from angel investors and venture capital firms -initial public offering

Lets assume that the corporation repurchases 100 shares of its own $0.01 par value common stock at $30 a share and, later reissues the 100 shares of treasury stock for $35. Record the entry:

1) 100 shares @ $30 2) 100 shares @ $35 1) Treasury stock (100 x30) 3000 Cash 3000 2) Cash 3500 Treasury stock 3000 Additional paid in capital 500

Corporations stockholders control the corporation:

By voting their shares, they determine the makeup of the board of directors which in turn appoints the management to run the corporation

(Accounting for common stock issues) Lets assume that a corporation issues 10000 shares of its $0.01 par value common stock at $30 per share:

Cash (1000 shares x $30) 30,000 Common stock (1000 shares x $0.01) 10 Additional paid in capital (difference) 29,990

(Accounting for common stock issues) Lets assume that a corporation issues 1000 shares of its no par value common stock at $30 per share:

Cash (1000 shares x $30) 30,000 Common stock 30,000

Assume that the corporation issues 1000 shares of $30 par value preferred stock for $40 a share:

Cash(1000 x $40) 40,000 Preferred stock 30,000 Additional paid in capital 10,000

What are the features of preferred stock?

Convertible, redeemable, and cumulative

Treasury Stock:

Corporations own stick that it has reacquired

Record date:

Date on which the registered owners of stock are determined

Dividends:

Distributions by a corporation to its stockholders. Not paid on treasury shares repurchased by the corporation.

Private Corporation:

Does not allow investment by the general public and has fewer stockholders. Not regulated by the SEC and do not need to file financial statements with it. EX: Cargill (agricultural commodities), Koch industries (oil and gas), Big 4 accounting firms

Sometimes, corporations distribute to shareholders additional shares of the companies' own stock rather than cash. These are known as _______ or _______ depending on the size of the stock distribution.

stock dividends;stock splits

Accounting for preferred stock issues:

the entries to record the insurance of preferred stock are similar to those for the issue of common stock

Angel investors:

wealthy individuals in the business community willing to provide investment funds