Chapter 13

All of the following balances are normally found in a corporation's stockholders' equity section except

d. dividends in arrears.

If a company has 900,000 shares of common stock authorized, and has 750,000 shares issued, and holds 30,000 shares of common stock as treasury stock, the general ledger account for common stock, $1 par value would have a balance of

$750,000.

A company purchases 1,500 shares of its $25 par value stock at $35 per share. It then reissues 500 shares at $40 per share. The entry upon reissue of the stock would include a credit to

Paid-in Capital from Treasury Stock for $2,500.

Preferred stock would least likely have which characteristic?

The right of the holder to vote at stockholders' meetings

Outstanding shares

a company's stock currently held by all its shareholders, including share blocks held by institutional investors and restricted shares owned by the company's officers and insiders.

Charter

a document that descries the name and purpose of the corporation, the types and number of shares of stock that are authorized to be issued, the names of the individuals that formed the company, and the number of shares that these individuals agreed to purchase (only needs to be incorporated in one state)

organization costs

costs incurred in the formation of a corporation (state, legal fees, promotional expenditures)

Treasury stock should be listed as an asset in the balance sheet.

false

When treasury stock is sold for an amount greater than its cost, the difference should be credited to Gain on Sale of Treasury Stock and reported as other income on the income statement.

false

Underwrite

for an indirect issuance of stock, the investment banker buys the stock from corp and resells the shares to investors

How to form a corporation

grant of a state charter

Par value

is the legal capital established for a share of stock

authorized stock

the charter indicates how many stocks a corp can authorize to sell. The total amount anticipates both initial and subsequent capital needs (generally exceeds the number initially sold) (No formal accounting entry)

Dividends in arrears are not considered a liability because no obligation exists until the dividend is declared by the board of directors.

true

Issued shares of stock less outstanding shares equals treasury stock

true

Retained earnings is net income retained in a corporation and is often referred to as earned capital

true

The cost method derives its name from the fact that the Treasury Stock account is maintained at the cost of shares purchased.

true

The cumulative feature of stock applies to preferred stock

true

Issuance of stock

Can issue directly to investors or indirectly through an investment banking firm that specializes in bringing securities to the attention of prospective investors

Entries for the issuance of common stock

Cash XXX Common stock XXX OR Cash XXX Common stock XXX Paid in capital in excess of stated value- Common stock XXX

Purchase of treasury stock entries

Treasury stock XXX Cash XXX

by-laws

establish the internal rules and procedures for conducting the affairs of the corporation

A corporation is bound to a contract entered into by one of its stockholders.

false

Preferred stockholders have a priority as to dividends but not to assets in the event of liquidation

false

Stockholders' liability is generally unlimited; therefore, creditors have recourse to stockholders' personal assets as well as corporate assets.

false

Entries for the issuance of preferred stock

Cash XXX Preferred stock XXX Paid-in captial in excess of par-preferred stock XXX

Disposal/sale of treasury stock entries

Cash XXX Treasury stock XXX Paid-in Capital from treasury stock XX

Stockholder's equity

paid-in/common stock (contributed) capital and retained earnings (earned capital)

Characteristics of a corporation

separate legal existence, limited liability of stockholders, transferable ownership rights, ability to acquire capital, continuous life, corporation management, government regulations, additional taxes

license

subjects the corporation's operating activities to the general corporation laws of the state (must do in each state)