Kế toán, kiểm toán - Chapter 13: Accounting for corporations


Separate legal entity

Limited liability of stockholders

Transferable ownership rights

Continuous life

Lack of mutual agency for stockholders

Ease of capital accumulation


Governmental regulation

Corporate taxation


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Chapter 13ACCOUNTING FOR CORPORATIONSCHARACTERISTICS OF CORPORATIONSAdvantagesSeparate legal entityLimited liability of stockholdersTransferable ownership rights Continuous lifeLack of mutual agency for stockholdersEase of capital accumulationDisadvantagesGovernmental regulationCorporate taxationC 1Ultimate controlStockholders usually meet once a yearSelected by a vote of the stockholdersOverall responsibility for managing the companyCORPORATE ORGANIZATION AND MANAGEMENTC 1RIGHTS OF STOCKHOLDERSVote at stockholders’ meetingsSell stockPurchase additional shares of stockReceive dividends, if anyShare equally in any assets remaining after creditors are paid in a liquidationC 1Par value is an arbitrary amount assigned to each share of stock when it is authorized.Market price is the amount that each share of stock will sell for in the market.BASICS OF CAPITAL STOCKClasses of Stock Par Value No-Par Value Stated ValueC 1DividendsStockholdersCASH DIVIDENDSCorporationTo pay a cash dividend, the corporation must have:A sufficient balance in retained earnings; and The cash necessary to pay the dividend.Regular cash dividends provide a return to investors and almost always affect the stock’s market value.P 2ACCOUNTING FOR CASH DIVIDENDSThree important datesDate of DeclarationRecord liabilityfor dividend.DividendsDate of RecordNo entryrequired.Date of PaymentRecord payment ofcash to stockholders.P 2STOCK DIVIDENDSWhy a stock dividend? Can be used to keep the market price on the stock affordable. Can provide evidence of management’s confidence that the company is doing well.A distribution of a corporation’s own shares to its stockholders without receiving any payment in return.Small Stock DividendDistribution is £ 25% of the previously outstanding shares.Large Stock DividendDistribution is > 25% of the previously outstanding shares.HotAir, Inc.Common Stock100 shares$1 parP 2Common Stock$10 par value100 sharesOldSharesNewSharesCommon Stock$5 par value200 sharesSTOCK SPLITSA distribution of additional shares of stock to stockholders according to their percent ownership.P 2PREFERRED STOCK A separate class of stock, typically having priority over common shares in . . .Dividend distributionsDistribution of assets in case of liquidationUsually has a stated dividend rateNormally has no voting rightsC 2vs.NoncumulativeCumulativeDividends in arrears must be paid before dividends may be paid on common stock. (Normal case)Undeclared dividends from current and prior years do not have to be paid in future years.PREFERRED STOCKConsider the following Stockholders’ Equity section of the Balance Sheet. The Board of Directors did not declare or pay dividends in 2010. In 2011, the Board declared and paid cash dividends of $42,000.C2PREFERRED STOCKC2vs.NonparticipatingParticipatingDividends may exceed a stated amount once common stockholders receive a dividend equal to the preferred stated rate.Dividends are limited to a maximum amount each year. The maximum is usually the stated dividend rate. (Normal case)PREFERRED STOCKReasons for Issuing Preferred StockTo raise capital without sacrificing controlTo boost the return earned by common stockholders through financial leverageTo appeal to investors who may believe the common stock is too risky or that the expected return on common stock is too lowC2TREASURY STOCKTreasury stock represents shares of a company’s own stock that has been acquired. Corporations might acquire its own stock to: Use their shares to buy other companies. Avoid a hostile takeover. Reissue to employees as compensation. Support the market price.P 3STATEMENT OF RETAINED EARNINGSRetained earnings is the total cumulative amount of reported net income less any net losses and dividends declared since the company started operating.Legal Restriction Most states restrictthe amount oftreasury stockpurchases to theamount of retainedearnings.Contractual Restriction Loan agreementscan includerestrictions on payingdividends below acertain amount ofretained earnings.Restricted Retained EarningsC 3Optionpurchaseprice $30 per share.STOCK OPTIONSMarketprice ofstock $75 per share. The right to purchase common stock at a fixed price over a specified period of time. As the stock’s price rises above the fixed option price, the value of the option increases.Options are given to key employees to motivate them to:focus on company performance,take a long-run perspective, andremain with the company.C 3EARNINGS PER SHAREBasic earningsper share=Net income - Preferred dividendsWeighted-average common shares outstandingEarnings per share is one of the most widely cited accounting statistics.A 1END OF CHAPTER 13

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