Chapter 11 Notes

Chapter 11 Notes - 1 Chap 11 Study Notes I. Introduction 1....

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chap 11 Study Notes I. Introduction 1. The corporation is the only form of business recognized as a separate legal entity. 2. Creation and governance of corporations are highly regulated by law. 3. Corporations are created under state (not federal) laws. Each state has different laws for incorporation. Benefits of Stock Ownership 1. The ownership of common stock conveys several rights: a. A voice in management : Owners are granted the right to vote at stockholders' meetings on major issues concerning the management of the corporation including the election of the board of directors. In lieu of attending a meeting, a vote by proxy (absentee ballot) gives the stockholders’ voting rights to a designated party. b. Dividends : Owners may receive dividends (distributions of corporate profits). c. Residual claim : Owners may receive distributions from the corporation upon liquidation. II. Authorized, Issued, and Outstanding Shares 1. Authorized number of shares is the maximum number of shares that can be issued by a corporation as specified in its charter. This should be a larger number than a corporation plans to issue initially to provide for future flexibility. 2. Issued number of shares is the total cumulative number of authorized shares that have been issued to date by the corporation. Unissued number of shares is the number of authorized shares that have not yet been issued to date. 3. Outstanding number of shares is the number of shares currently owned by stockholders ("out" there). Outstanding # shares = Issued # shares – Treasury Shares 4. Treasury stock is the number of shares that have been issued to investors and then reacquired by the corporation. If there is no treasury stock, the number of issued shares will equal the number of outstanding shares. III. THE EARNINGS PER SHARE RATIO. 1. EPS is a measure of profitability. 2. Facilitates comparing companies of different sizes. g Outstandin Shares Common of Number Average Income Share per Earnings = IV. THE CHARACTERISTICS OF COMMON STOCK AND ANALYZE TRANSACTIONS AFFECTING COMMON STOCK. A. General 1. There are two types of stock issues. 2. All corporations must issue common stock, but preferred stock is not issued by every corporation. 1
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
B. Common Stock Transactions 1. Common stock is the residual equity (the "leftovers") of a corporation. a. It ranks after preferred stock for dividends and liquidation distributions. b. Common stockholders are the "risk takers" and, therefore, they are voting owners of a corporation. 2. Common stockholders receive dividends after the preferred stockholders receive their dividends. Dividend rates are determined by the board of directors, usually based on the company's profitability for common stockholders. 3.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/22/2008 for the course ACCT 2251 taught by Professor Lilysieux during the Winter '07 term at CSU East Bay.

Page1 / 12

Chapter 11 Notes - 1 Chap 11 Study Notes I. Introduction 1....

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online