REPORTING AND ANALYZING STOCKHOLDER’S EQUITY 11

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REPORTING AND ANALYZING STOCKHOLDER’S EQUITY 11

Smith, Suzette, Host has reference to this Academic Journal, PHwiki organized this Journal REPORTING AND ANALYZING STOCKHOLDER’S EQUITY Accounting, Fourth Edition 11 Identify in addition to discuss the major characteristics of a corporation. Record the issuance of common stock. Explain the accounting as long as the purchase of treasury stock. Differentiate preferred stock from common stock. Prepare the entries as long as cash dividends in addition to underst in addition to the effect of stock dividends in addition to stock splits. Identify the items that affect retained earnings. Prepare a comprehensive stockholders’ equity section. Evaluate a corporation’s dividend in addition to earnings per as long as mance from a stockholder’s perspective. Study Objectives

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Authorized stock Issuance Par in addition to no-par value Accounting as long as common stock issues The Corporate Form of Organization Characteristics Formation Stockholder rights Purchase of treasury stock Dividend preferences Liquidation preference Stock Issue Considerations Accounting as long as Treasury Stock Preferred Stock Dividends in addition to Retained Earnings Cash dividends Stock dividends Stock splits Retained earnings restrictions Financial Statement Presentation in addition to Corporate Per as long as mance Balance sheet Statement of cash flows Dividend record Earnings per as long as mance Debt vs. equity decision Reporting in addition to Analyzing Stockholders’ Equity An entity separate in addition to distinct from its owners. The Corporate Form of Organization Classified by Purpose Not- as long as -Profit For Profit Classified by Ownership Publicly held Privately held Nike General Motors IBM General Electric Salvation Army American Cancer Society Gates Foundation Cargill Inc. Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics of a Corporation Advantages Disadvantages The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation.

Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Corporation acts under its own name rather than in the name of its stockholders. The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation. Characteristics of a Corporation Limited to their investment. The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation. Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics of a Corporation Shareholders may sell their stock. The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation. Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics of a Corporation

Corporation can obtain capital through the issuance of stock. The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation. Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics of a Corporation Continuance as a going concern is not affected by the withdrawal, death, or incapacity of a stockholder, employee, or officer. The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation. Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics of a Corporation The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation. Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics of a Corporation Separation of ownership in addition to management prevents owners from having an active role in managing the company.

SO 1 Identify in addition to discuss the major characteristics of a corporation. The Corporate Form of Organization Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes Characteristics of a Corporation Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Corporate Management Government Regulations Additional Taxes The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation. Characteristics of a Corporation Corporations pay income taxes as a separate legal entity in addition to stockholders pay taxes on cash dividends. Stockholders Chairman in addition to Board of Directors President in addition to Chief Executive Officer General Counsel in addition to Secretary Vice President Marketing Vice President Finance/Chief Financial Officer Vice President Operations Vice President Human Resources Treasurer Controller Illustration 11-1 Corporation organization chart The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation.

Other Forms of Business Organization Limited partnerships Limited liability partnerships (LLPs) Limited liability companies (LLCs) S Corporation no double taxation cannot have more than 75 shareholders The Corporate Form of Organization SO 1 Identify in addition to discuss the major characteristics of a corporation. Characteristics of a Corporation Forming a Corporation File application with the Secretary of State. State grants charter. Corporation develops by-laws. Initial Steps: Companies generally incorporate in a state whose laws are favorable to the corporate as long as m of business (Delaware, New Jersey). Corporations engaged in interstate commerce must obtain a license from each state in which they do business. SO 1 Identify in addition to discuss the major characteristics of a corporation. The Corporate Form of Organization

1. Vote in election of board of directors in addition to on actions that require stockholder approval. Stockholders Rights 2. Share the corporate earnings through receipt of dividends. Illustration 11-3 SO 1 Identify in addition to discuss the major characteristics of a corporation. The Corporate Form of Organization 3. Keep the same percentage ownership when new shares of stock are issued (preemptive right). Illustration 11-3 SO 1 Identify in addition to discuss the major characteristics of a corporation. Stockholders Rights The Corporate Form of Organization 4. Share in assets upon liquidation in proportion to their holdings. This is called a residual claim. Illustration 11-3 SO 1 Identify in addition to discuss the major characteristics of a corporation. Stockholders Rights The Corporate Form of Organization

Stock Issue Considerations Charter indicates the amount of stock that a corporation is authorized to sell. Number of authorized shares is often reported in the stockholders’ equity section. Authorized Stock SO 1 Identify in addition to discuss the major characteristics of a corporation. Stock Issue Considerations Name of corporation Stockholder’s name Shares Signature of corporate official Prenumbered Illustration 11-4 SO 1 Identify in addition to discuss the major characteristics of a corporation. Stock Issue Considerations Corporation can issue common stock directly to investors or indirectly through an investment banking firm. U.S. securities exchanges New York Stock Exchange American Stock Exchange 13 regional exchanges NASDAQ national market Issuance of Stock SO 1 Identify in addition to discuss the major characteristics of a corporation.

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Stock Issue Considerations Capital stock that has been assigned a value per share. Years ago, par value determined the legal capital per share that a company must retain in the business as long as the protection of corporate creditors. Today many states do not require a par value. No-par value stock is quite common today. In many states the board of directors assigns a stated value to no-par shares. Par in addition to No-Par Value Stocks SO 1 Identify in addition to discuss the major characteristics of a corporation. Stock Issue Considerations Review Question SO 1 Identify in addition to discuss the major characteristics of a corporation. Which of these statements is false Ownership of common stock gives the owner a voting right. The stockholders’ equity section begins with paid-in capital. The authorization of capital stock does not result in a as long as mal accounting entry. Legal capital is intended to protect stockholders.

Paid-in Capital Retained Earnings Account Paid-in Capital in Excess of Par Account Two Primary Sources of Equity Common Stock Account Preferred Stock Account Paid-in capital is the total amount of cash in addition to other assets paid in to the corporation by stockholders in exchange as long as capital stock. SO 2 Record the issuance of common stock. Stock Issue Considerations Paid-in Capital Retained Earnings Account Two Primary Sources of Equity Common Stock Account Preferred Stock Account Retained earnings is net income that a corporation retains as long as future use. SO 2 Record the issuance of common stock. Stock Issue Considerations Paid-in Capital in Excess of Par Account Primary objectives: Identify the specific sources of paid-in capital. Maintain the distinction between paid-in capital in addition to retained earnings. SO 2 Record the issuance of common stock. Other than consideration received, the issuance of common stock affects only paid-in capital accounts. Stock Issue Considerations Accounting as long as Common Stock Issues

The term reserves is used under IFRS with reference to all of the following except: gains in addition to losses on revaluation of property, plant, in addition to equipment. capital received in excess of the par value of issued shares. retained earnings. fair value differences. Under IFRS, the amount of capital received in excess of par value would be credited to: Retained Earnings. Contributed Capital. Share Premium. Par value is not used under IFRS. “Copyright © 2011 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request as long as further in as long as mation should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies as long as his/her own use only in addition to not as long as distribution or resale. The Publisher assumes no responsibility as long as errors, omissions, or damages, caused by the use of these programs or from the use of the in as long as mation contained herein.” Copyright

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