accounting chapter 11

Stock split

An increase in the number of shares outstanding with a corresponding decrease in par value per share. The additional shares are distributed proportionately to all common shareholders. The purpose of a stock split is to reduce market price per share and encourage wider public ownership of the company's stock. For example, 2-for-1 stock split will give each stockholder twice as many shares as previously owned

Stock registrar

An independent fiscal agent, such as a bank, retained by a corporation to provide assurance against over issuance of stock certificates

Underwriter

An investment banking firm that handles the sale of a corporation's stock to the public

Publicly owned corporation

Any corporation whose shares are offered for sale to the general public

Stockholders

The owners of a corporation. The name reflects the fact that their ownership is evidenced by transferable shares of capital stock

State of incorporation

The state in which the corporation is legally formed. This may or may not be the state in which the corporation conducts most or any of its business

Book value per share

The stockholders' equity represented by each share of common stock, computed by dividing common stockholder's equity by the number of common shares outstanding

Contributed capital

The stockholders' equity that results from capital contributions by investors in exchange for shares of common or preferred stock. Also referred to as paid-in capital

Which of the following is not a characteristic of the corporate form of organization?

Stockholders have authority to decide by majority vote the amount of dividends to be paid.

In a corporation's organization chart, which is the highest position?

Stockholders.

Paid-in capital

The amounts invested in a corporation by its stockholders

Dividend yield

The annual dividend paid to a share of stock, expressed as a percentage of the stock's market value. Indicates the rate of return represented by the dividend

Limited personal liability

The concept that the owners of a corporation are not personally liable for the debts of the business. Thus stockholders' potential financial losses are limited to the amount of their equity investment

Double taxation

The fact that corporate income is taxed to the corporation when earned and then again taxed to the stockholders when distributed as dividends

Stock transfer agent

A bank or trust company retained by a corporation to maintain its records of capital stock ownership and make transfers from one investor from one investor to another

Corporation

A business organized as a legal entity separate from its owners. Chartered by the state with ownership divided into shares or transferable stock. Stockholders are not liable for debts of the corporation.

Preferred stock

A class of a capital stock usually having preferences as to dividends and in the distribution of assets in the event of liquidation

Par value (or stated value)

A class of capital stock usually having preferences as to dividends and in the distribution of assets in the event of liquidation

Closely held corporation

A corporation owned by a small group of stockholders. Not publicly owned.

Stock certificate

A document issued by a corporation (or its transfer agent) as evidence of the ownership of the number of the number of shares stated on the certificate

Stockholders subsidiary ledger

A record showing the number of shares of capital stock

Common stock

A type of capital stock that possesses the basic rights of ownership, including the right to vote. Represents the residual element of ownership in a corporation

The advantages of corporations going public include all of the following except:

Ability to remove assets.

Additional paid-in-capital

An account showing the amounts invested in a corporation by stockholders in excess of par value or stated value. In short, this account shows paid-in capital in excess of legal capital

A primary disadvantage of the corporate form of organization is:

Corporate earnings are subject to double taxation.

The purchase of treasury stock for cash will:

Decrease stockholders' equity.

Dividends

Distribution of assets (usually cash) by a corporation to its stockholders. Normally viewed as a distribution of profits, dividends cannot exceed the amount of retained earnings. Must be formally declared by the board of directors and distributed on a per-share basis. Note: stockholders cannot simply withdraw assets form a corporation at will

Legal capital

Equal to the par value or stated value of capital stock issued. This amount represents a permanent commitment of capital by the owners of a corporation and cannot be removed without special legal action. Of course, it may be eroded by losses.

Public information

Information that, by law, must be made available to the general public. Includes the quarterly and annual financial statements—and other financial information—about publicly owned corporations

Public corporations are required by law or regulation to perform all of the following except:

Make regularly scheduled dividend payments to all stockholders.

When shares of stock are sold from one investor to another, they will trade at:

Market value.

Shares that have been sold and are in the hands of stockholders are called:

Outstanding.

Board of directors

Persons elected by common stockholders to direct the affairs of a corporation

Treasury stock

Shares of a corporation's stock that have been issued and then reacquired, but not canceled

The net assets of a corporation are equal to:

Total assets - total liabilities.

Capital stock

Transferable units of ownership in a corporation. A broad term that can refer to common stock, preferred stock, or both

Stock that had been issued by a corporation, and later reacquired, is classified as:

Treasury stock.