Ch 11 flashcards

Corporation

An entity separate and distinct from its owners, created by law, having most rights and privileges of a person.

Limited Liability

The liability of stockholders is normally limited to their investment in the corporation, protecting personal assets from corporate creditors.

Transferable Ownership Rights

Shares of capital stock represent ownership in a corporation and are transferable either in part or whole by stockholders.

Continuous Life

The lifespan of a corporation as stated in its charter, which may be perpetual or limited to a specific number of years.

Board of Directors

A group elected by stockholders to formulate operating policies and monitor management's actions in a corporation.

Publicly Held Corporation

A corporation whose stock is sold to the general public and is regulated by government bodies.

Treasury Stock

Corporation's own stock that it has reacquired from shareholders but not retired, reducing stockholders' equity.

Cash Dividends

Pro-rata distributions of cash to stockholders, requiring sufficient retained earnings and board declaration.

Cumulative Preferred Stock

Preferred stock that requires both current-year and unpaid prior-year dividends to be paid to stockholders.

Stock Split

The issuance of additional shares to stockholders, which increases the number of shares outstanding while decreasing par value per share.

Retained Earnings

The portion of net income retained for future use, reflecting the company's reinvestment rather than cash payouts.

Paid-in Capital

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

Stock Dividend

Pro-rata distributions of the corporation's own stock to stockholders, transferring funds from retained earnings to paid-in capital.

Debt Financing

Raising capital by issuing bonds or borrowing, which can increase return on investment but also introduces fixed payment obligations.

Equity Financing

Raising capital by selling shares of stock, which does not require regular mandatory payments like debt obligations.

Payout Ratio

The percentage of earnings distributed as cash dividends to stockholders, indicating a company's dividend policy.

Return on Equity (ROE)

A measure of profitability that shows how much profit a company generates with the money shareholders have invested.

Authorized Stock

The maximum number of shares a corporation is allowed to sell as stipulated in its corporate charter.

Common Stock

A type of stock that represents ownership in a corporation and entitles holders to vote on corporate matters.

Preferred Stock

A type of stock that has preferential rights over common stock in terms of dividend payments and asset liquidation.

Legal Capital

The amount of capital that must be maintained by a corporation, often linked with the par value of its issued stock.

Double Taxation

The taxation scenario where corporate income is taxed at the corporate level and dividends are taxed again at the individual level.

Hybrid Organizational Forms

Business structures that combine characteristics of partnerships and corporations, such as LLCs and S corporations.

Deficit in Retained Earnings

Occurs when cumulative losses and dividends exceed cumulative profits, resulting in a negative balance.

Comprehensive Income

Includes all non-owner changes in equity, such as unrealized gains and losses, affecting the total equity of the corporation.

Accrued Dividend

Preferred dividends that have not been declared or paid in a given period, which must be disclosed but are not liabilities until declared.