Chapter 9 Financial Accounting Flashcards
(47 cards)
What are the 6 things incorporations have to do when organizing a corporation?
Organize the corporation Pay Fees Sign Charter File Documents with the state Agree to bylaws Need to tell the state the maximum amount of shares I am going to sell
What are the 4 rights shareholders get?
Vote at stockholder meetings
Receive Dividends
Receive share if corporation liquidates
Maintain proportionate ownership
Preemptive Right
You have the right to buy more shares to maintain your ownership if you have cash to do so
What do shareholders have the right to receive but are NOT required to get?
Dividends
What are the 2 parts of Stockholders Equity?
Paid-in Capital
Retained Earnings
Paid in Capital includes what 2 things?
Represents amounts contributed by stockholders
Include Stock Accounts
Retained Earnings
Amount earned and kept by the corporation
What are 4 characteristics of Common Stock?
Basic form of common stock
Have rights of ownership
Benefit most if company succeeds
Risk most if company does not succeed
What are the 3 characteristics of Preferred Stock?
Have Preference in receiving dividends and assets in case of liquidation
Hybrid between common stock and debt
Rare for corporations to issue
What are the 2 characteristics of par value stock?
Arbitrary amount assigned to share of stock
In most states, represents minimum price for shares
What are 3 characteristics of No-Par Stock?
Does not have a par value
May have a stated value
Non Par Company can sell stock for any price
What is another name for Paid in Capital in excess of par?
Additional Paid In Capital
In terms of journal entries what 2 things happen with Preferred Stock?
Preferred stock is credited for the shares Issued multiplied by the par value
- A separate paid in capital account is used if stock is issued above par
Common and Preferred Stock both follow the same…
Pattern in terms of journal entries
Authorized ( In terms of stock)
Maximum number of shares company can issue as indicated on charter
Issued ( In Terms of Stock)
Number of shares company has sold to shareholders
Outstanding (In terms of Stock)
Number of shares currently in shareholders possession
In stock terms if there is any difference between issue and outstanding that is due to what?
Treasury Stock
Treasury Stock
Company owns stock that it has issued and later reacquired
What are 3 reasons why company has Treasury Stock?
All authorized shares have been issued and shares are needed for employee stock purchase plans
- Company wants to purchase its shares at a low price and then re-issue them at a higher price
- Management wants to avoid a takeover
What are 4 accounting rules of Treasury Stock?
Recorded at cost (not par value)
Contra-equity account (debit balance)
Reduces stockholders equity and assets
-If sold, paid in capital from treasury stock transactions is credited
Retained Earnings Balance Equation
Balance = Net income - net losses - dividends declared
Debit Balance =
Deficit
Debit Balance = Deficit means…
Losses and dividends exceed equations
