Simple to become an owner. Ownership can be transferred. Limited liability.
Advantages of corporate ownership:
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separate legal entity
Because a corporation is a ________, it can own assets, incur liabilities, sue/be sued, and be entered into contracts.
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articles of incorporation
You must submit an application to the state government to create a corporation. When a corporation is approved, the issues the ________, which holds information about the company.
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Stockholder benefits
Voting rights, dividends, residual claims, and preemptive rights are all.....
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Voting rights
________ let stockholders vote on important issues.
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dividends
Stockholders have the right to receive ________ when declared by the board of directors.
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liquidation rights
Residual claims are also known as ________.
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Residual claims
________ say that if a corporation goes bankrupt, stockholders share any remaining assets after creditors are paid.
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Preemptive rights
________ means that existing stockholders have the first chance to purchase newly issued stock before it is issued to the public.
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Equity financing
________ is issuing new stock to investors.
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Debt financing
________ is borrowing money from lenders.
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advantages of equity financing
Equity does not have to be repaid and dividends are optional are both _________.
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advantages of debt financing
Interest on debt is tax deductible and debt does not change shareholder control are both examples of ________.
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Contributed capital Retained earnings Treasury stock Accumulated other comprehensive income or loss
The four elements of stockholders' equity:
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Common Stock and Additional Paid in Capital
Contributed capital consists of ________.
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Additional Paid in Capital
APIC stands for ________. It is the amount collected over par.
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Contributed capital
________ is what capital the company receives from investors when they sell stock to them.
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Retained earnings
________ represents earned capital.
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Treasury stock
________ consists of shares that were issued, but the company bought back. It is a permanent, contra account to Common Stock/APIC with a debit balance and reduces stockholders' equity.
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Accumulated other comprehensive income or loss
Recorded unrealized gains and losses that cause temporary changes in the value of assets and liabilities of the company.
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authorized shares
The max number of shares that can be issued are called ________.
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Issued shares
________ are permanently for the stockholder unless they sell them for another company or they are bought back.
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Unissued shares
________ are shares that have not been traded.
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Outstanding shares
________ are owned by stockholders.
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can't get dividends
Outstanding shares are the only shares that ________.
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Par value
________ is assigned to each share of stock that is authorized. Usually is a small number ($0.03). Some state require it.
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market price
Par value is not the same as _________, which is the value of what shares can sell for to the public.
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No-par value stock
________ does not have a determined price.
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no APIC
If they is no par in the equation, there is ________.
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initial public offering (IPO)
The first time a corporation's stock is available
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seasoned new issue
When new stock is issued to the public, this is called ________.
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Debit Cash Credit Common Stock Credit Additional Paid in Capital
The journal entry for issuing stock at par value.
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journal entry
A corporation not need a ________ when there is an interaction between two investors.
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purpose of repurchases
The ________ can include making a company believe the stock is worth getting, buying back shares to reissue them at a higher price, buying back shares to reissue them to employees, and lastly to reduce the number of outstanding shares.
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cost
When issued shares are bought back, it is recorded at ________.
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no voting or dividend rights
Treasury stock has no _______.
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Stock transactions
_________ are only found on the balance sheet.
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Debit Treasury Stock Credit Cash
Journal entry for reacquiring stock:
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Debit Cash Credit Treasury Stock Credit APIC
Journal entry for reissued stock:
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gains or losses
Stock transactions never generate ________.
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growth investment
________ is buying stock that pay a small amount of dividends or no dividends at all.
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Income investments
________ are from common stock that do pay dividends.
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retained earnings and cash
Before a dividend is declared, a company must have enough ________.
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Declared by a board of directors Not legally required. Liabilities once declared. Not an expense.
Dividends are.....
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declaration date
The ________ is the day when the Board of Directors decide to issue a cash dividend and the liability is established.
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Debit Dividends Credit Dividends Payable
The journal entry for the declaration of a dividend.
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date of record
The ________ is an administrative responsibility, so there is no journal entry.
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date of payment
The ________ reduces the liability and cash.
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Debit Dividends Payable Credit Cash
The journal entry for the date of payment:
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year end
The ________ is when the temporary accounts are closed to Retained Earnings.
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Debit Retained Earnings Credit Dividends
The journal entry for year end/closing accounts:
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Equation to calculate Outstanding shares:
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Preferred stock
________ is given to a special group of investors, but can be bought back.
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Redemption
________ means the preferred stock is retired, which results in the issuance being reversed.
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Debit Preferred Stock Debit APIC Credit Cash
Journal entry for redemption:
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current dividend preference
A ________ states that preferred dividends must be paid before paying dividends to stockholders.
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cumulative dividend preference
A ________ states if a current dividend is not paid yet, the unpaid amount amount has to be paid before other common dividends.
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Dividends in arrears
________ regard cumulative preferred stock that has not been paid yet. They are not on the balance sheet.
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Retained Earnings
________ are the collective earnings of a company.
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accumulated deficit
The negative balance of Retained Earnings is called ________.
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Earnings Per Share (EPS)
________ provides information on the profit earned from common stock that is outstanding.
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Equation for calculating Earnings Per Share:
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Return on Equity (ROE)
________ reports a company's return to stockholders.
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Equation for calculating Return on Equity:
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Price/Earnings (P/E) Ratio
The ________ is a measure of the value that investors place on a company's common stock. A higher ratio predicts strong future performances.
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Equation for calculating the Price/Earnings Ratio:
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