Chapter 9 Financial Accounting Flashcards

(47 cards)

1
Q

What are the 6 things incorporations have to do when organizing a corporation?

A
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
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2
Q

What are the 4 rights shareholders get?

A

Vote at stockholder meetings
Receive Dividends
Receive share if corporation liquidates
Maintain proportionate ownership

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3
Q

Preemptive Right

A

You have the right to buy more shares to maintain your ownership if you have cash to do so

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4
Q

What do shareholders have the right to receive but are NOT required to get?

A

Dividends

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5
Q

What are the 2 parts of Stockholders Equity?

A

Paid-in Capital

Retained Earnings

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6
Q

Paid in Capital includes what 2 things?

A

Represents amounts contributed by stockholders

Include Stock Accounts

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7
Q

Retained Earnings

A

Amount earned and kept by the corporation

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8
Q

What are 4 characteristics of Common Stock?

A

Basic form of common stock
Have rights of ownership
Benefit most if company succeeds
Risk most if company does not succeed

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9
Q

What are the 3 characteristics of Preferred Stock?

A

Have Preference in receiving dividends and assets in case of liquidation
Hybrid between common stock and debt
Rare for corporations to issue

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10
Q

What are the 2 characteristics of par value stock?

A

Arbitrary amount assigned to share of stock

In most states, represents minimum price for shares

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11
Q

What are 3 characteristics of No-Par Stock?

A

Does not have a par value
May have a stated value
Non Par Company can sell stock for any price

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12
Q

What is another name for Paid in Capital in excess of par?

A

Additional Paid In Capital

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13
Q

In terms of journal entries what 2 things happen with Preferred Stock?

A

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

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14
Q

Common and Preferred Stock both follow the same…

A

Pattern in terms of journal entries

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15
Q

Authorized ( In terms of stock)

A

Maximum number of shares company can issue as indicated on charter

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16
Q

Issued ( In Terms of Stock)

A

Number of shares company has sold to shareholders

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17
Q

Outstanding (In terms of Stock)

A

Number of shares currently in shareholders possession

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18
Q

In stock terms if there is any difference between issue and outstanding that is due to what?

A

Treasury Stock

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19
Q

Treasury Stock

A

Company owns stock that it has issued and later reacquired

20
Q

What are 3 reasons why company has Treasury Stock?

A

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
21
Q

What are 4 accounting rules of Treasury Stock?

A

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

22
Q

Retained Earnings Balance Equation

A

Balance = Net income - net losses - dividends declared

23
Q

Debit Balance =

24
Q

Debit Balance = Deficit means…

A

Losses and dividends exceed equations

25
Dividends
Are distributions of retained earnings
26
What are retained earnings NOT equal to?
CASH
27
What are 3 forms of Dividends?
Cash Stock Noncash assets
28
With Cash Dividends what 2 things must a company have?
Enough Retained Earnings to declare the dividend | Enough Cash to pay the dividend
29
What are 3 important Dividend Dates?
Date of Declaration Date of Record Date of Payment
30
What are 2 important characteristics of Date of Declaration?
Board of Directors announces dividends | Corporation is now obligated to pay
31
Date of Record
Stockholders who own shares on this date will receive dividend
32
Date of Payment
Payment sent to shareholders on record
33
When accounting for dividends, what happens to the accounting equation in the big picture?
Owners Equity ⬇️ | Assets ⬇️
34
If retained earnings increase what happens to net income and dividends?
Dividends ⬆️ | Net Income⬇️
35
If retained earnings decrease what happens to net income and dividends?
Net Income⬇️ | Dividends ⬇️
36
What is the order that dividends get paid? (4 groups)
Dividends in arrears Cumulative Preferred Shareholders Preferred Shareholders Common Stock Shareholders
37
Who receives dividends FIRST: preferred or common shareholders?
Preferred Shareholders
38
Dividends in arrears
Cumulative preferred shareholders that have not been paid yet
39
What are the 2 reasons corporations distribute stock dividends?
Provide dividend, yet conserve cash | Reduce market price of shares
40
What are 2 characteristics of Small Stock Dividends?
Less than 25% of outstanding shares | Recorded at market value
41
What are 2 characteristics of Large Stock Dividends?
Greater than 25% of outstanding shares | Recorded at par value
42
What 2 things have no effect on the Accounting equation?
Stock Dividend | Stock Split
43
What happens to the accounting equation when paying cash dividends?
Assets ⬇️ Liabilities ⬇️ Owners Equity unchanged
44
What happens to the accounting equation when declaring cash dividends?
Assets no effect Liabilities ⬆️ Owners Equity⬇️
45
What happens to the accounting equation when selling treasury stock?
Assets ⬆️ Liabilities no effect Owners Equity⬆️
46
What happens to the accounting equation when purchasing treasury stock?
Assets ⬇️ Liabilities no effect Owners Equity ⬇️
47
What happens to the accounting equation when issuing stock?
Assets ⬆️ Liabilities no effect Owners Equity ⬆️