Accounting chapter 10
common stock
stock that does not give stockholders any special preferences
What three basic rights do stockholders usually have? (10-1)
1. To vote at stockholders' meetings, unless an exception is made for holders of a particular kind of stock. 2. To share in a corporation's earnings. 3. To share in the distribution of the assets of the corporation if it ceases operations and sells all its assets
What are the responsibilities of a corporations board of directors? (10-1)
A board of directors determines corporate policies and selects corporate officers to supervise the day- to-day management of the corporation.
Partnership
A business in which two or more persons combine their assets and skills
Proprietorship
A business owned by one person
Charter
A legal document giving certain rights to a person or company
in place of a general ledger capital account for each owner, how does a corporation show stock ownership? (10-1)
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? (10-2)
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.
stockholder
An owner of one or more shares of a corporation
How can a business issue stock without causing the voting rights of current common stockholders to be diminished? (10-2)
By issuing preferred stock that does not offer voting rights.
To finance rapid expansion, how can a corporation acquire additional capital? (10-2)
By selling stock to investors or borrowing money.
What two basic kinds of stock may a corporation issue? (10-1)
Common and preferred.
stock certificate
Evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued.
stated value stock
No-par stock that has been assigned a value by a corporation
Must all corporations file their financial statements with the SEC? (10-2)
No. Only publicly held corporations are required to file their financial statements with the Securities and Exchange Commission.
Why does a conversion option add value to preferred stock? (10-2)
The conversion option enables the corporation to is- sue 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.
convertible preferred stock
Preferred stock with an option to exchange it for common stock at a specified rate.
A 6% $100 par value preferred stock has a conversion ratio of 10. The corporations common stock is currently valued at 12. Should preferred stockholders convert their stock? (10-2)
Stockholders should convert their stock if they believe the market price of the common stock will increase by more than 6% per year, less the effect of any dividends paid on common stock.
How are the earnings of a corporation subject to double taxation? (10-1)
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? (10-1)
The earnings of an LLC are divided among its members. The earnings are only taxed on the members' personal tax returns.
Initial Public Offering (IPO)
The first public offering of a corporation's stock.
privatley held corporation
a corporation owned by a small number of individuals
board of directors
a group of persons elected by the stockholders to manage a corporation referred to as a shareholder
articles of incorporation
a legal document that identifies basic characteristics of a corporation, which is a part of the application submitted to a state to become a corporation
registration statement
a long, complex document that firms must file with the SEC when they sell securities through a public offering
preferred stock
a stock that gives preferred shareholders preference over common shareholders in dividends along with other rights
share of stock
a unit of ownership in a corporation
par value
a value assigned to a share of stock and printed on the stock certificate
par value stock
capital stock that has been assigned a value per share in the corporate charter
No-par value stock
capital stock that has not been assigned a value in the corporate charter
Stock Transfer
changing ownership of a stock
publicly held corporation
corporation that sells stock on the open market
Corportation
is an organization by law to exist separately and apart form its owners divided into units
Conversion Option
the ability of a security to be traded for a specified number of shares of another security
limited liability corporation
the limited liability afforded to corporate stockholders no double taxation
conversion ratio
the number of shares of common stock received when a security is converted
double taxation
the taxation of earnings to the corporation and to the stockholders when they receive dividends
capital stock
the total shares of ownership in a corporation