accounting chapter 10 stockholders equity
advantages of a corporation
1. limited liability 2. the ability to raise capital and transfer ownership
primary components of stockholders equity
1. paid in capital 2. retained earnings 3. treasury stock
stockholders rights
1. right to vote 2. right to receive dividends 3. right to share in the distribution of assets if the company is dissolved
angel investors
Wealthy individuals in the business community willing to risk investment funds on a promising business venture.
disadvantages of a corporation
additional taxes more paperwork
s corporation
allows a company to enjoy limited liability as a corporation, but tax treatment as a partnership
Publicly held corporation
allows investment by the general public and is regulated by the securities and exchange commission , bigger companies ( walmart)
common stock
authorized stock issued stock outstanding stock treasury stock
common stock
basic form of stock shareholders benefit most if corporation succeeds but take more risk
if corporation has no other stock it is usually classified as
common stock
no par value stock
common stock that has not been assigned a par value
preferred stock can be
convertible : shares can be exchanged for common stcok redeemable : share can be returned to the corporation at a fixed price cumulative : shares receive priority for future dividends if dividens are not paid in a given year
double taxation
corporate income is taxed once on earnings at the corporate level and again on dividends at the individual level
additional taxes
corporations have double taxation
payment date
date of the actual cash distribution
delcaration date
date on which board of directors declares the cash dividend to be paid
dividends payable is recorded as credit on the
declaration date
retained earnings and dividends
decreased by dividends
dividends
distribution to the shareholders of a corporation usually based on earnings a company not obligated to pay dividends even if preferred, unless it is declared by a board of directors types of dividends cash ( common stock and preferred stock) stock other assets
privately held corporation
does not allow investment by the general public and normally has fewer stockholders
retained earnings sometimes called
earned capital
retained earnings
earnings retained in the corporation and not paid out as dividends EQUALS ALL NET INCOME LESS ALL DIVIDENDS, SINCE THE COMPANY BEGAN OPERATIONS has normal credit balance its called accumulated deficit if losses
Preferred stock is "preferred" over common stock by providing preferred stock holders with these rights:
first right to specified amount of dividends preference in distribution of assets during dissolution of corporation
preferred stock
has advantages over common stock they receive dividends first and receive assets first in liquidation shareholders earn a fixed dividend it is less common than common stock and less risky than common stock no voting rights
preferred stockholders
have the right to receive dividends only in the years the board of directors declares dividends.
retained earnings and net income
increased by net income
line of agreements
informal agreement which allows companies to borrow money up to a prearranged limit
The amount of money paid into a company by its owners is referred to as
invested capital
treasury stock
is a company´s own issued stock that it has repurchased
paid in ( invested) capital
is the amount stockholders have invested in the company
treasury stock
is the number of issued shares repurchased by the company
treasury stock is what account and does what to stockholders equity
it is a contra equity account and reduces stockholders equity
what will decrease the par value of shares
large stock dividends
stock of a publicly held corporation trades on
nyse (walmart ) nasdaq ( tech companies) otc
ability to raise capital and transfer ownership
ownership rights are easily transferred
par value vs market value
par value is the legal capital per share that is set when the corporation is first established and is unrelated to value. the market value per share is equal to the current share price
venture capital firms
provide additional financing, often in the millions, for a percentage ownership in the company
a company´s past profits that are not paid out in dividends are
retained earnings
earned capital increases
retained earnings
authorized stock
share available to sell ( issued + unissued)
who owns and controls a corporation
shareholders
issued stock
shares actually sold ( = outstanding + treasury )
outstanding stock
shares issued and held by investors , only these shares receive dividends
the articles of incorporation
sometimes called corporate charter it describes 1. the nature of the firm´s business activites 2. the shares of stock to be issued 3. the initial board of directors
record date
specific date on which the company will determine who will receive the dividend
preferred stock
stock with preference over common stock in the payment of dividends and the distribution of assets
organization chart
stockholders board of directors ceo then vice pres cfo all that
what accounts are common stock and additional paid in capital
stockholders equity accounts
limited liability
stockholders in a corporation can lose no more than the amount they invested in the company
invested capital
the amount of money paid into a company by its owners
retained earnings
the earnings not distributed in dividends to stockholders over the lief of the company
initial public offering
the first time a corporation issues stock to the public
par value
the legal capital assigned per share of stock , par value has no relationship to the market value of the common stock
the number of shares outstanding equals
the number of shares issued minus the number of shares in treasury
Historically, par value was considered to be
the value of the company's shares of stock.
companies buy back their own stock for various reasons
to boost underpriced stock to distribute surplus cash without paying dividends to boost earnings per share to satisfy employee stock ownerahip plans
more paperwork
to protect the rights of those who buy a corporation´s stock or who lend money to a corporation