Corporations & Stockholder's Equity

Question 1

What is a Corporation

Answer 1

A business organized as a full legal entity distinct from owners

Question 2

7 Characteristics of a Corporation

Answer 2

1) Separate legal existence
2) Limited Liability of Shareholders
3) Transferrable Ownership Rights
4) Ability to acquire capital through issuance of stock
5) Continuous Life
6) Corporation management through BOD
7) Additional taxes - gov, income, separate legal entity

Question 3

3 Characteristics of a Publicly Help Corp

Answer 3

1) Large No. of shareholders
2) Traded on Stock Exchange
3) Large Corps

Question 4

3 Characteristics of Privately Held Corp

Answer 4

1) Only a few shareholders
2) Not sold to general public
3) Usually smaller companies

Question 5

Common Stockholder Rights

Answer 5

1) Right to vote
2) No fixed rate of dividend
3) Receive Dividends Last
4) Have residual claim in a liquidation

Question 6

Preference Stockholders Rights

Answer 6

1) No voting rights
2) Fixed rate of dividend
3) Right to receive before common stockholders
4) Have priority to assets in liquidation

Question 7

Authorized Stock

Answer 7

In the AOA - Maximum no. of shares, disclosure is required in BS

Question 8

Outstanding Stock

Answer 8

Shares being held by external parties

Question 9

Issued Stock

Answer 9

Number of shares sold

Question 10

Rights Issue

Answer 10

Issue of shares to existing shareholders, to raise capital

DR: Cash
CR: Common Stock, Share Premium

Question 11

Stock Split

Answer 11

Reduction of par/stated value per share to increase marketability but does not affect stockholder’s equity account

Question 12

Redemption of shares

Answer 12

Required by corporation with intention to retire shares