Chapter 13 corp: organization, stock transactions, and dividends

principles 2

stockholders/shareholders

Owners of stock in a corporation

public corporation

shares of stock traded in public markets

nonpublic/private corporations

shares are not traded publicly and usually owned by a small group of investors

limited liability

creditors can seize the corporation's assets but have no recourse against the shareholders' personal assets

board of directors

elected by stockholders to control their corporation

double taxation

Corporation pays federal income taxes on their income. The distributed income to stockholders (dividends) are taxed as income tax

cost of legal fees, taxes, state incorporation fees, license fees, and promotional cost when organizing a corporation

debit Organizational Expenses

main sources of stockholder's equity

paid-in capital and retained earnings

main source of paid-in capital

issuing stock

authorized stock

number of shares a corporation can issue or sell

issued stock

the number of shares issued or sold to stockholders

outstanding stock

remaining stock in the hands of stockholders

par value

a dollar amount or value assigned to a share of stock on a stock certificate

no-par stock

Stock that has no amount (par) assigned to it.

legal capital

minimum amount of paid-in capital

Rights of Stockholders

1. vote in matters concerning the corporation

2. share in distribution of earnings

3. share in assets upon liquidation

types or classes of stock

common, preferred, and cumulative preferred stock

common stock

when only one class of stock is issued

preferred stock

greater chance of receiving dividends because of preference right to dividends, stated dollars per share or percent on par

Declared Dividends

payment on dividends authorized by the corporation's board of director

cumulative preferred stock

rights to receive regular dividends that were not declared (paid) prior years, noncumulative have no rights

in arrears (page 653)

preferred dividends in arrears must be paid before common stock dividends

preferences to asset if a corporation goes out of business

first: creditors, second: preferred stockholders, followed by: common stockholders

entry for issuing a stock (page 654)

debit: cash
credit: preferred stock
common stock

sold at a premium

stock is issued (sold) for more than its par

sold at a discount

stock is issued for less than its par

entry for premium on stock (page 655)

debit: cash

credit: preferred stock

paid-in capital in excess of par

paid-in capital in an entry

excess of the amount paid over par

entry for no par stock (page 656)

debit: cash

credit: common stock

*paid-in capital in excess of stated value (common stock recorded at the assigned stated value)

cash dividends

a cash distribution of earnings by a corporation to its shareholders

3 dates in a dividend announcement

1. date of declaration

2. date of record

3. date of payment

entry for the declaration date of cash dividends

debit: cash dividends

credit: cash dividends payable

entry for the date of record for cash dividends

no entry necessary

entry for the date of payment for cash dividends

debit: cash dividends payable
credit: cash

closing process for cash dividends at the end of the accounting period

Cash Dividends transferred to Retained Earnings
debit: retained earnings
credit: cash dividends
if not paid by the end of the period, Cash Dividends Payable is recorded on the balance sheet as a current liability

stock dividends

distribution of shares of stock to shareholders, normally on common stock to common shareholders

entry to record stock dividends (page 659)

debit: stock dividends
credit: stock dividends distributable

paid-in capital in excess of Par-Common stock

entry for stock dividends distributed (page 660)

debit: stock dividends distributable

credit: common stock

stock split

corporation reduces the par (stated value) of its common stock and issues a proportionate number of additional shares

journal entry for stock split

not entry because the only par (stated value) and number of shares have changed

treasury stock

stock that a corporation has issued (sold) and then reaquired

journal entry for treasury stock: purchased common stock (page 663)

debit: treasury stock

credit: cash

journal entry for treasury stock: sold shares of the treasury stock (page 663)

debit: cash

credit: treasury stock

paid-in capital from sale of treasury stock

journal entry for treasury stock: sold remaining shares of the treasury stock (page 663)

debit: cash

paid-in capital from sale of treasury stock

credit: treasury stock