MGMT 200 Purdue Chapter 10

paid capital

amount of money paid into a company by its owners

sole proprietorship

business owned by one person

partnership

business owned by two or more persons

corporation

entity that is legally separated from its owners and pays income taxes

stages of equity financing

first raise money from founders, business, friends, and family

angel investors

wealthy like shark tank

venture capital firms

additional funding and expertise

initial public offering

first time a corporation issues stock to public

publicly held corporation (3)

public investment, more stock holders, regulated by SEC

privately held corporation (3)

no public investment, fewer stockholders, not regulated by SEC

stockholder rights (3)

right to vote, right to receive dividends, right to share in the distribution of assets

advantages of corporation

limited liability and ability to raise capital and transfer ownership

disadvantages of corporation

additional taxes and more paperwork

authorized common stock

shares available to sell (issued + unissued)

issued common stock

shares actually sold (outstanding + treasury)

outstanding common stock

shares issued and held by investors

treasury common stock

shares issued and repurchased by the company

par value

legal capital per share of stock that is assigned when corporation is established

accounting for common stock

debit cash credit common stock

accounting for common stock paid capital

debit cash credit common stock credit additional paid in capital

preferred stockholders have rights to what

first rights to a specified amount of dividends

preferred stockholders receive preference over common stockholders in assets in the event of what

the corporation is dissolved

recording preferred stock issues

debit cash credit preferred stock credit additional paid in capital

convertible preferred stock

shares can be exchanged for common stock

redeemable preferred stock

shares can be returned to the corporation at a fixed price

cumulative preferred stock

shares receive priority for future dividends if dividends are not paid in a year

treasury stock

companies buy back their stock

why do companies buy back stock

boost underpriced stock, distribute surplus cash without dividends, boost earnings per share, satisfy employee stock ownership plans

recording purchase of treasury stock

debit treasury stock

credit cash

recording resale of treasury stock

debt cash

credit treasury stock

credit additional paid in capital

recording resale of treasury stock

debit cash

credit treasury stock

credit additional paid in capital

resale of treasury stock

debit cash

debit additional paid in capital

credit treasury stock

declaration date dividends

board announces the next dividend to be paid

record date

company looks at records to determine who the stockholders of company are

payment date

actual distribution of dividends

recording cash dividends

debit dividends

credit dividends payable

stock split

large stock dividend including a reduction in par value per share, no transaction

recording large stock dividends

debit stock dividend credit common stock

total SE - stock split, stock dividend

no change, no change

common stock - stock split, stock dividend

no change, increase

RE - stock split, stock dividend

no change, decrease

par value per share - vstock split, stock dividend

decrease, no change

recording small stock dividend

debit stock dividends

credit common stock

credit additional paid in capital

return on equity

measures ability of company management to generate earnings from resources owners provide

dividend yield

how much a company pays out in dividends relative to share price

earnings per share

net income per share of common stock

price earnings ratio

how tock is trading relative to current earnings