ACC116A Chapter 10 Fall 2016 - Chapter 11 Accounting for...

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Chapter 11 Accounting for Equity
Let’s talk about “Corporations” Articles of incorporation (required of all corporation) - : O corporate charter describing: O Nature of business activities O Shares of stock to be issued O Initial board of directors O The board of directors establish corporate policies and appoints officers who manage the corporation
WHY INCORPORATE? 11-3 GOOD Separate legal entity ( corp separate from owners ) Limited liability of stockholders ( cannot come after s/h assets) Transferable ownership rights Continuous life ( ownership can transfer w/o affecting the corp) Lack of mutual agency for stockholders ( s/h can’t enter into contracts on behalf of the corp) Ease of raising capital ( cap. accumulation ) BAD Governmental regulation Corporate/doubl e taxation ( on earnings & dividends pd )
Ultimate control Typically meet 1x /yr Selected by a vote of the stockholders Overall responsibility for managing the company 11-4 C o r p o r a t e O r g a n i z a t i o n C h a r t S e c r e t a r y V i c e P r e s i d e n t F i n a n c e V i c e P r e s i d e n t P r o d u c t i o n V i c e P r e s i d e n t M a r k e t i n g P r e s i d e n t B o a r d o f D i r e c t o r s S t o c k h o l d e r s
Remember “Equity Financing” is one way of raising $$ Stages of Equity Financing O Corporations first raise money from founders of the business, friends, and family O To grow, companies seek investments from: O Angel investors O Venture capital firms O Initial public offering (IPO)
Illustration 10.3—Stages of Equity Financing 10-6
Corporations have Stockholders’ Equity Primary Sections of Stockholders’ Equity Paid-in capital Retained Earnings Treasury Stock Amount stockholders have invested in the corporation Amount of earnings the corporation has retained Corporation’s own stock that it has reacquired
Corporations: Public or Private? Allows public investment Many shareholders Stocks trade on stock exchanges or by over- the-counter (OTC) trading Regulated by the (SEC) Examples— Wal-Mart, Microsoft, Intel Does not allow investment by the general public Fewer stockholders Stocks not traded in the open market Not regulated by the (SEC) Examples— Cargill (agricultural commodities) Koch Industries (oil and gas), Chrysler (cars) Public Private
PAR VALUE STOCK – BALANCE SHEET PRESENTATION 11-9
Illustration 10.4—Stockholder Rights 10-10

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