Accounting 201Chapter 10 Power Point Flashcards
What is the accounting equation for Stockholders’ Equity?
Stockholders’ Equity = Assets - Liabilities
What are the three Primary Sections of Stockholders’ Equity and their meanings?
1) Paid-in capital = Amount stockholders have invested in the corporation.2) Retained Earnings = Amount of earnings the corporation has retained.3) Treasury Stock = Corporation’s own stock that it has reacquired.
Articles of incorporation (or corporate charter) describe?
a) the nature of the firm’s business activitiesb) the shares to be issuedc) the initial board of directors
With corporation’s stockholders control the corporation how?
By voting their shares, they determine the makeup of the board of directors - which in turn appoints the management to run the corporation.
Corporations may be either public or private describe how a public corporation operates:
1) Stocks trade on a stock exchanges such as NYSE, AMEX, NASDAQ; or by over-the-counter (OTC) trading.2) Regulated by the Securities and ExchangeCommission (SEC) I.E. Wal-Mart, Microsoft, Intel.
Corporations may be either public or private describe how a private corporation operates:
1)Does not allow investment by the general public and has fewer stockholders.2) Not regulated by the Securities and ExchangeCommission (SEC) and do not need to file financialstatements with it. I.E. Cargill (agricultural commodities), Koch Industries (oil andgas), Chrysler (cars).
What are the advantages of a Corporation?
1) Limited liability2) Ability to raise capital3) Lack of mutual agency
What are the dis-advantages of a Corporation?
1) Additional taxes2) More paperwork
If a corporation has only one kind of stock, itusually is labeled as common stock. What are the three types of Common Stock and what defines them?
1) Authorized Shares = available to sell(issued and unissued).2) Issued Shares = actually sold (includes treasury stock).3) Outstanding Shares = held by investors(excludes treasury stock).
If a corporation has only one kind of stock, itusually is labeled as common stock. There are three types of Common Stock: Authorized Shares, Issued Shares, Outstanding Shares. What are the two accounting equations?
1) Authorized – Unissued = Issued2) Issued – Treasury Stock = Outstanding
What two main reasons make preferred stock better than common stock?
1) Usually have first rights to a specified amount of Dividends.2) Receive preference over common stockholders in the distribution of assets in the event the corporation is dissolved.
Comparison of common stock, preferred stock, and bonds: Voting rights?
Common = YesPreferred = Usually NoBonds = No
Comparison of common stock, preferred stock, and bonds: Risk to the investor?
Common = HighestPreferred = MiddleBonds = Lowest
Comparison of common stock, preferred stock, and bonds: Expected return to the investor?
Common = HighestPreferred = MiddleBonds = Lowest
Comparison of common stock, preferred stock, and bonds: Risk of contract violations?
Common = LowestPreferred = MiddleBonds = Highest
Comparison of common stock, preferred stock, and bonds: Preference for payments?
Common = LowestPreferred = MiddleBonds = Highest
Comparison of common stock, preferred stock, and bonds: Tax deductibility of payments?
Common = NoPreferred = UsuallyBonds = Yes
What are the Features of Preferred Stock and what defines them?
1) Convertible = Shares can be exchanged for common stock.2) Redeemable = Shares can be returned to the corporation at a fixed price.3) Cumulative = Shares receive priority for future dividends, if dividends are not paid in a given year.
What is Treasury Stock?
A corporation’s own stock that it has reacquired
Why corporations repurchase their stock?
- To boost under-priced stock.- To distribute surplus cash without paying dividends.- To boost earnings per share.- To offset issuance of shares under stock-based compensation plans.
Define Retained Earnings and Dividends:
- Represents the earnings retained in the corporation – earnings not paid out as dividends to stockholders.- Equals all net income, less all dividends, since the corporation began.- Has a normal credit balance consistent with other stockholders’ equity accounts.- If losses exceed income since the corporation began, retained earnings will have a debit balance and is called an accumulated deficit.
Sometimes, corporations distribute to shareholders additional shares of the companies’ own stock rather than cash. Theseare known as _____________or __________ depending on the size of the stock distribution.
stock dividends or stock splits
