Accounting 2120- Ch. 13 "Accounting for Corporations"

What is the formula for the "Price Earnings Ratio"?

(Market Value per share)/(Earnings per share)

What is the formula for "Earnings per Share"?

(Net Income- Preferred Dividends)/(Weighted Average common shares outstanding)

What is a stock dividend?

A distribution of a corporation's own shares to its stockholders without receiving any payment in return

What is the Price-Earnings Ratio?

A ratio that reveals information about the stock market's expectations for a company's future growth in earnings, dividends, and opportunities

What is preferred stock?

A separate class of stock, typically having priority over common shares in - dividend distributions -distribution of assets in case of liquidation

What is par value?

An arbitrary amount assigned to each share of stock when it is authorized

Define the issuance of NONCUMULATIVE Preferred Stock:

Undeclared dividends from current and prior years do not have to be paid in future years

What is a deficit?

When a company incurs cumulative losses or pays dividends greater than total profits earned in other years.

What does Retained Earnings consist of?

cumulative net income (loss) not distributed as dividends

What must a corporation have in order to pay cash dividends?

- A sufficient balance in retained earnings -The cash necessary to pay the dividend

What are the DISADVANTAGES of a corporation?

- Governmental regulation - Corporate taxation

Name the 3 classes of stock:

- Par Value -No-Par Value -Stated Value

What are the ADVANTAGES of a corporation?

- Separate legal entity -Limited Liability -Transferable ownership rights -Continuous life -No mutual agency for stockholders -Easier capital accumulation

What are the reasons for issuing preferred stock?

- To raise money without sacrificing control - To boost the return earned by common stockholders through financial leverage - To appeal to investors who may believe the common stock is too risky or that the expected return on common stock is too low

Why would a corporation acquire its own stock?

- Use its shares to buy other companies -avoid a hostile takeover -reissue to employees as compensation -maintain a strong market

What are the characteristics of preferred stock?

- Usually has a stated dividend rate -Normally has no voting rights

What are the Rights of a Stockholder?

- Vote at stockholders' meetings -Sell stock -Purchase additional shares of stock - Receive dividends - Share in any assets remaining after creditors are paid in a liquidation

Why do corporations give out stock dividends?

- keeps the market price on the stock affordable - evidence of management's confidence that the company is doing well

What is considered Paid-In capital?

-cash -other assets received in exchange for stock

What are the 3 important dates for cash dividends?

1.) Date of Declaration 2.) Date of Record 3.) Date of Payment

What is the hierarchy of a corporation?

1.) Stockholders 2.) Board of Directors 3.) President, VP, and other offices 4.) Employees of the corporation

What does the journal entry look like for issuing stock at par value?

Debit: Cash Credit: Common Stock at $____ par value

What does the journal entry look like for issuing stock at a premium?

Debit: Cash Credit: Common Stock at $_____ par value Credit: Paid-in Capital in excess of par value, common stock

What is the journal entry for selling treasury stock ABOVE COST?

Debit: Cash Credit: Treasury Stock Common Credit: Paid-In Capital, Treasury Stock

What is the journal entry to record the sale of Treasury Stock AT COST?

Debit: Cash Credit: Treasury Stock, Common

What is the journal entry for the date of payment?

Debit: Common Dividend Payable Credit: Cash

What is the journal entry for the date of distribution on a small stock dividend?

Debit: Common Stock Dividend Distributable Credit: Common Stock $___ Par Value

What is the journal entry for the date of declaration?

Debit: Retained Earnings Credit: Common Dividend Payable

What is the journal entry for a large stock dividend?

Debit: Retained Earnings Credit: Common Stock Dividend Distributable

What is the journal entry for a small stock dividend?

Debit: Retained Earnings Credit: Common Stock Dividend Distributable Credit: Paid-In capital in excess of par value, common stock

What is the journal entry to record the purchase of treasury stock?

Debit: Treasury Stock, Common Credit: Cash

What does the journal entry look like for issuing stock for non-cash assets?

Debit: type pf asset Credit: Common Stock at $_____ par value Credit: Paid-in Capital in Excess of par value, common stock

What is a large stock dividend?

Distribution of 25% or greater of the outstanding shares

What is a small stock dividend?

Distribution of 25% or less of the outstanding shares

Define the issuance of CUMULATIVE Preferred Stock:

Dividends in arrears must be paid before dividends may be paid on common stock

What is stockholder's equity?

Equity of a corporation that consists of -Paid-in (Contributed) capital - Retained Earnings

What does treasury stock do to the balance sheet?

It causes/is shown as a reduction in total stockholders equity

What is Market Price?

The amount that each share of stock will sell for in the market

What is a stock spilt?

The distribution of additional shares of stock to stockholders according to their percent ownership

What is Retained Earnings?

The total cumulative amount of reported net income less (-) any net losses and dividends declared since the company started operating

What is Treasury Stock?

Treasury stock represents shares of a company's own stock that has been acquired.

What are cash dividends?

distributions by a corporation to its stockholders in cash

What is a share of stock?

each unit of ownership in the corporation