Chapter 9 Financial Accounting Flashcards Preview

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Flashcards in Chapter 9 Financial Accounting Deck (47):
1

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

2

What are the 4 rights shareholders get?

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

3

Preemptive Right

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

4

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

Dividends

5

What are the 2 parts of Stockholders Equity?

Paid-in Capital
Retained Earnings

6

Paid in Capital includes what 2 things?

Represents amounts contributed by stockholders
Include Stock Accounts

7

Retained Earnings

Amount earned and kept by the corporation

8

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

9

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

10

What are the 2 characteristics of par value stock?

Arbitrary amount assigned to share of stock
In most states, represents minimum price for shares

11

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

12

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

Additional Paid In Capital

13

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

14

Common and Preferred Stock both follow the same...

Pattern in terms of journal entries

15

Authorized ( In terms of stock)

Maximum number of shares company can issue as indicated on charter

16

Issued ( In Terms of Stock)

Number of shares company has sold to shareholders

17

Outstanding (In terms of Stock)

Number of shares currently in shareholders possession

18

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

Treasury Stock

19

Treasury Stock

Company owns stock that it has issued and later reacquired

20

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

21

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

22

Retained Earnings Balance Equation

Balance = Net income - net losses - dividends declared

23

Debit Balance =

Deficit

24

Debit Balance = Deficit means...

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 ⬆️

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