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ch. 11 - Chapter 11 Study Objectives After studying this...

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Financial Accounting - Chapter 11 1 Chapter 11 - Study Objectives After studying this chapter, you should be able to: 1. Identify and discuss the major characteristics of a corporation. 1. Record the issuance of common stock. 1. Explain the accounting for the purchase of treasury stock. 1. Differentiate preferred stock from common stock. 1. Prepare the entries for cash dividends and understand the  effect of stock dividends and stock splits. 1. Identify the items that affect retained earnings. 1. Prepare a comprehensive stockholders’ equity section. 1. Evaluate a corporation’s dividend and earnings performance  from a stockholder’s perspective.
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Financial Accounting - Chapter 11 2 The Corporation Corporation -  a business organized as a separate legal  entity owned by stockholders.  It has many of the rights  and privileges of a person – to purchase assets, incur  debts, and it must pay income taxes.  Its purpose can be  for profit or not for profit.  Its ownership structure can be a: Publicly held corporation –  it may have thousands of  stockholders and is regularly traded on a national  securities market like the NYSE or NASDAQ. Privately held corporation –  usually has only a few  stockholders, and it does not offer its stock for sale to the  general public.
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Financial Accounting - Chapter 11 3 Advantages and Disadvantages of  the Corporation Advantages: 1. Separate legal entity from  its owners. 1. Liability of owners limited to  their investment. 1. Easy to transfer ownership. 1. Easier to raise capital in  most cases. 1. Continuity of life. 1. Professional management. Disadvantages: 1. Professional management-  separation of ownership  and management. 1. More governmental  regulation. 1. Double taxation.
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Financial Accounting - Chapter 11 4 Formation of a Corporation A corporation has to comply with the laws of a  given state where it incorporates.  The state  of incorporation issues a  corporate charter   which is obtained by submitting an  application called the  articles of  incorporation.   Once the charter is obtained,  the corporation elects  the board of directors   and they pass  by-laws  to govern the  corporation.
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Financial Accounting - Chapter 11 5 Common Stock Evidence of ownership in a corporation is from the  stock  certificate,  which indicates the number of shares the  individual owns.  Ownership of  common stock  has the  following rights: 1. To vote for the board of directors.
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