acct504 Chapter 10 Short Exercise Solutions

acct504 Chapter 10 Short Exercise Solutions - Chapter 10...

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Chapter 10 Stockholders’ Equity Short Exercises (5 min.)  S 10-1 Corporation’s advantages:   Continuous life  Transferability of ownership  Limited liability of the stockholders Ease of raising capital  Corporation’s disadvantages: Double taxation of distributed profits Government regulation Separation of ownership and management  (5 min.)  S 10-2 1. The  stockholders  hold ultimate power in a corporation. 2. The  chairperson  of the board of directors is usually the most powerful person in a corporation. The title is also often CEO. 3. The  president  is in charge of day-to-day operations. The title is COO. 4. The chief financial officer is in charge of accounting and finance. The title is CFO. Chapter 10     Stockholders’ Equity 10-1
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(5-10 min.)  S 10-3 1. The  common stockholders  are the real owners of a corporation. 2. Preferred stockholders have priority over common stockholders in (1) receipt of  dividends  and (2) receipt of  assets  if the corporation liquidates. 3. Common  stockholders benefit more from a successful corporation because the  preferred stockholders’ dividends are limited to a specified amount. The common stockholders take more risk so their potential for gains through an increase in the value of the company’s stock is unlimited. (5-10 min.)  S 10-4 TO: Jessica Johnson and Claudia Stein FROM: Student Name RE: Steps in forming a corporation The first step in organizing a corporation is to obtain a  charter  from the state. The  charter authorizes the corporation to issue a certain number of shares of stock to  the owners of the business, who are called  stockholders . The corporation will exist  when the incorporators pay fees, sign the charter, file documents with the state, and  agree to a set of  bylaws  to determine how the corporation is to be governed  internally.  Later steps include the stockholders electing a  board of directors  who in turn  appoint  officers  to manage the corporation on a day-to-day basis. These officers  consist of the chairperson of the board (the chief executive officer) and the president (the chief operating officer), who lead the chief financial officer, who manages the  day to day operations of the controller (accounting officer) and treasurer (finance  officer).        Financial Accounting 9/e   Solutions Manual 10-2
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(5-10 min.)  S 10-5 The $47,952,000 was paid-in capital. It was  not  a profit and therefore had no effect on net income.
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