Accounting Final

What is a publicly held corporation?

Regularly traded on a national securities market and may have stockholders

What is a privately held corporation?

A closely held corporation, does not offer its stock for sale to the general public and may have only a few stockholders

What are the advantages of organizing as a corporation?

1. Ability to acquire large sums of capital

2. Continuous life, and free and easy transfer of ownership

3. Limited liability of shareholders because the corporation is a separate legal entity

What are the disadvantages of organizing as a corporation?

1. Separation of ownership and corporate management

2. Corporate taxation (separate taxation)

3. Government regulation

How is a corporation formed?

By grant of a state charter

How many states is a corporation incorporated in?

One

What are the stockholder rights specified in the by-laws:

1. Vote

2. Dividends

What is liquidation?

Receive a proportionate share of company assets after all debts are paid

What is preemption?

Maintain your proportional ownership percentage when new shares are issued

What is treasury stock?

Corporation’s own stock that has been issued and subsequently reacquired by the corporation and held in its treasury for future use

What is par value stock?

Capital stock that has been assigned a value per share in the corporate charter

What does authorized stock mean?

Number of shares of a company is allowed to sell; listed in the charter

What does issued mean?

Number of shares sold to stockholders

What does outstanding mean?

Number of shares currently owned by stockholders and not held as treasury stock

How do you find average issue price for shares?

Common stock + APIC / Issued shares

What does the reissuance of treasury stock increase?

1. Assets

2. Stockholder’s equity

What does the reissuance of treasury stock decrease?

1. Common stock

If a company wants to pay a cash dividend, what must it have?

1. Adequate amount of retained earnings to declare the dividend

2. Enough cash to pay the dividend

What is the date of declaration?

The date the B.O.D formally declares the cash dividend and announces it to shareholders

What is the date of record?

Marks the time when ownership of the outstanding shares is determined for dividend purposes

What is the date of payment?

Dividend checks are mailed to the stockholders, and the payment of the dividend is recorded

If stock dividends are 25% less of the corporations issued stock:

Record at the current market price

If stock dividends are greater than 25% of the corporations issued stock:

Record at par value

What are the reasons for stock dividends?

1. Conserve cash and still provide a return to shareholders

2. Reduce a high market price to make it more attractive to potential investors

What is a stock split?

Like a stock dividend, it involves the issuance of additional shares of stock to stockholders according to the to their percentage ownership

How do you find earnings per share?

1. Net income - Preferred dividends / Wtd average # of common shares O/S

   1. OR

2. Net income / # of common shares O/S

How do you calculate paid in capital?

Common Stock + Paid in Capital Excess + Preferred Stock

What is the purpose of the statement of cash flows?

1. Predicts future cash flows

2. Evaluates management decisions - how did management obtain and spend cash?

3. Determines ability to pay both dividends to shareholders and principal and interest to creditors

4. Shows relationship between net income and cash flows

Operating activities Inflows from:

1. Collections from customer (on A/R) and cash sales

2. Interest (on investments or notes receivable) and dividends received

Operating activities Outflows to:

1. Payments to creditors (on A/P)

2. Cash payments for many expenses, including:

   1. Salaries and wages

   2. Rent, insurance, utilities, etc

   3. Income taxes

   4. Interest on liabilities

Investing activities inflows:

1. Cash proceeds from sale of all PPE

2. Maturity/sale of long-term investments

3. Collection of notes receivable

Investing activities outflows:

1. Purchase PPE and other long-term assets

2. Loan money on long-term notes receivable

Financing activities inflows:

1. Borrow on note payable

2. Issue bonds payable

3. Issue common stock

4. Reissue treasury stock

Financing activities outflows:

1. Repay principle to creditors

2. Repurchase stock from owners

3. Pay cash dividends to owners

What is the information needed to prepare a statement of cash flows?

1. Comparative balance sheets

2. Income statement

3. Additional details concerning selected accounts

What is the indirect method?

Adjusts accrual-based net income to “cash provided by operating activities”

What is the direct method?

An alternative method to calculate cash provided by operating activities

How do you calculate net cash using operating activities?

+ Depreciation/depletion/amortization expense

+ Loss on sale of long-term assets

- Gain on sale of long-term assets

- Increase in current assets other than cash

+ Decrease in current assets other than cash

+ Increase in current liabilities

- Decrease in current liabilities

How do you find outstanding shares?

Issued shares - Treasury stock