Download Understanding Corporations: Terms, Concepts, and Financial Implications and more Quizzes Financial Accounting in PDF only on Docsity! TERM 1 What's A Corporation DEFINITION 1 Corporations are artificial persons Operate with permission of a state government ...Advantages of corporate form Continuous life Limited liability for shareholders Separation of ownership and management Vehicle to raise capital Easy to transfer ownership Taxes and government regulation TERM 2 Shareholders' Claims DEFINITION 2 Shareholders interests = residual interests Shareholder claims come after creditors Preferred stock has claim prior to common stock ...Dividends - may have the following rights: Cumulative get paid dividends in arrears before common gets any dividend (typical), Callable, Convertible ...Liquidation ...PS has look and feel of Debt (while Convertible Bonds has look and feel of Equity) (Common shareholders get paid last but get benefits of excess residual earnings) TERM 3 Issuance of Stock DEFINITION 3 Par Value meaningless in todays world Some states have No Par or Stated Value Additional Paid-in Capital (or Contributed Capital or Capital Surplus) amount paid for stock in excess of par TERM 4 Classes of Stock & Rights DEFINITION 4 Common Stock...Vote, Dividends, Liquidation, Preemption Terms...Authorized, Issued, Outstanding Preferred Stock... (Not Common), Dividends and Liquidation TERM 5 Cash Dividends DEFINITION 5 Driven by state law states are different Max amount From what source Often loans, bond indentures, and PS agreements limit dividends, ie, Pay us first!! TERM 6 Dividends Entries DEFINITION 6 Declaration Entries: Debit Retained Earnings (or Div) and Credit Dividends Payable Record date - no entry Payment Date: Debit Dividends Payable and Credit Cash TERM 7 Stock Issuance Journal Entries DEFINITION 7 On Issuance for Cash: Debit Cash and Credit Common Stock (at par) and Additional Paid in Capital On Issuance for Property: Debit Cash PPE (value) and Credit Common Stock and Additional Paid in Capital TERM 8 Treasury Stock DEFINITION 8 Purpose of Repurchase: Use of cash, Defend against takeover, Redistribution for options, Increase EPS Journal Entries: On Purchase...Debit Treasury Stock (at Cost) and Credit Cash On Resale...(if at a gain): Debit Cash and Credit Treasury Stock and Additional Paid In Capital TERM 9 Stock Dividends DEFINITION 9 Stock Dividends (usually for those less than 20%-25%): preserve cash, Let market pay the dividend, keep stock price down Journal Entry: Debit Retained Earnings (Mkt Value) and Credit Common Stock Stock split (or large stock dividend): just change par value no journal entry TERM 10 Stock Split DEFINITION 10 A stock split or stock divide increases the number of shares in a public company. Stock split (or large stock dividend) > 25% Change par value No journal entry to adjust Retained Earnings
