ACC212- CH 12

Stockholders' Equity

Sole Proprietorship

the simplest, unincorporated business structure owned and managed by one individual. There is no legal distinction between the owner and the business, meaning the owner receives all profits but holds unlimited personal liability for all debts, losses, and legal liabilities.

Partnership

a formal arrangement where two or more parties co-own and operate a business, sharing profits, losses, and management responsibilities

Corporation

a legal entity, separate from its owners (shareholders), designed to conduct business with the rights to own assets, sue, and be sued

Advantages of Corporations

Limited liability; greater ability to raise capital and transfer ownership

Disadvantages of Corporations

Additional taxes (double taxation); More paperwork imposed by federal and state governments and by securities regulators

Authorized Stock

Total shares of stocks a company is allowed to sell

Issued Stock

shared that have been sold by a company

Outstanding Stock

Shares sold and still owned by investors

Treasury Stock

shares sold but now repurchased by the company

Preferred Stock

shares sold and owned by investors who have preference to receive dividends

Preferred Dividends Per Share =

Par Value * Dividend Rate

Par Value

Nominal value of share per stock, no relationship to the market value of the stock

Retained Earnings

Net Income - Dividends

Declaration Date

Date on which a company announces/promises dividends

Record Date

Date on whcich a company determines who would receive dividends

Payment Date

Date of the actual distribution of dividends

On Declaration Date

Increase Dividends Payable, Decrease Dividends

On Record Date

Nothing needs to be done in financial accounting

On Payment Date

Decrease Cash, Decrease Dividends Payable

Return On Equity =

Net Income / Average Stockholders’ Equity

Earnings Per Share =

Net Income - Dividends on Preferred Stock / Average shares of common stock outstanding

Price Earnings Ratio =

Stock Price/ Earnings Per Share