Accounting 102 Chp.13-15

Corporation

An entity created by law that is separated and distinct from its owners. It’s also formed by a state charter.

Authorized stock

The amount of stock a corporation is allowed to sell as indicated by its charter.

Par value stock

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

The stockholder’s equity section of a corporation’s balance sheet consists of:

Paid-in capital and Retained earnings

Paid-in capital

The total amount of cash and other assets paid into the corporation by stockholders in exchange for capital stock.

Retained earnings

Net income retained in a corporation

Treasury Stock

A corporation’s own stock that has been issued and subsequently reacquired from shareholders but not retired.

Common shared outstanding

The difference between the number of common shares less than the treasury shares

Impact of a company purchasing treasury stock

A decrease of shareholder’s equity by the amount of the treasury stock

Dividend

A distribution by a corporation to its stockholders on a pro rata basis. Dividends may be in the form an ash, property, scrip, or stock.

Dividend payable

Are current liabilities

For a corporation to pay a cash dividend it must have

Retained earnings, adequate cash, and declared a dividend

Cash dividends

Reduce retained earnings

Stock dividend

Results in a decrease in retained earnings and an increase in paid-in capital

Stock Split

Involves the issuance of additional shares of stock to stockholders according to their percentage ownership. A stock split has no effect on total paid-in capital, retained earnings, or total stockholders’ equity. It is not necessary to journalize a stock split.

Retained earnings

Net income that is retained in the business.

Prior period adjustment

The correction of a material error in reporting net income in previously issued financial statements. The correction is directly made to retained earnings.

Investment of assets in a partnership

Increases both the net assets and total capital of the partnership

Bonus

When the new partner’s investment differs from the capital acquired. The bonus difference either goes to the old partners or the new partner. A bonus to a new partner results in a decrease in the capital balances of the old partners.

Long-term liabilities

Obligations that are expected to be paid after one year, including bonds, long-term notes and lease obligations

Mortgage bonds

Secured by real estate

Convertible bonds

Permit bondholders to convert the bonds into common stock at their option.

Market price of bonds

A function of three factors, the dollar amounts to be received, the length of time until the amounts are received, and the market rate of interest.

Bond discount

An additional cost of borrowing that should be recorded as interest expense over the life of the bonds.

Bond interest paid

The contractual interest rate

Lease

A contractual agreement between an owner and a renter that grants the right to use the property for a period of time in return for cash payments.

Capital lease

One that, although legally a rental case, is in substance an installment purchase by the lessee.