ch 16 - 16 CONTRIBUTED CAPITAL CHAPTER OBJECTIVES After...

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Unformatted text preview: 16 CONTRIBUTED CAPITAL CHAPTER OBJECTIVES After careful study of this chapter, students will be able to: 1. Explain the corporate form of organization. 2. Know the rights and terms that apply to capital stock. 3. Account for the issuance of capital stock. 4. Describe a compensatory stock option plan. 5. Recognize compensation expense for a compensatory share option plan. 6. Account for a fixed compensatory share option plan. 7. Account for a variable compensatory share option plan. 8. Account for share appreciation rights. 9. Describe the characteristics of preferred stock. 10. Know the components of contributed capital. 16-1 11. Understand the accounting for treasury stock. 16-2 SYNOPSIS Corporate Form of Organization 1. FASB Statement of Concepts No. 6 includes the definition of equity as one of the elements of financial statements. Equity in a company is the ownership interest in the company and may be calculated as the difference between assets and liabilities. Equity in a company is first created by owners' investments in the company. Subsequently, the value of the equity is changed by net income (loss), additional investments by owners, and distributions to owners. 2. A corporation is a legal entity, separate and distinct from its individual owners, created under the laws of a particular state. As a result, the corporation has an unlimited life, owners have limited legal liability, and ownership interests (stocks) are easily transferable. The purpose of the corporation and the rights and powers granted by the state to the corporation to engage in certain legal activities and business transactions related to those activities are stipulated in a written contract called the articles of incorporation or corporate charter . Corporations may be classified as private or public, open or closed, domestic or foreign. Corporate Capital Structure 3. The individual owners are called stockholders whose ownership in the corporation is evidenced by a stock certificate . Each stockholder has various stockholder's rights which include (a) the right to share in profits when a dividend is declared, (b) the right to elect directors and to establish corporate policies, (c) the preemptive right to maintain a proportionate interest in the ownership of the corporation by purchasing a proportionate share of additional capital stock, if more stock is issued, and (d) the right to share in the distribution of the assets of the corporation if it is liquidated. Common stock has all these rights; preferred stock does not, but has certain other privileges....
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This note was uploaded on 06/11/2008 for the course ACCT 3023 taught by Professor Fasci during the Spring '08 term at The University of Texas at San Antonio- San Antonio.

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ch 16 - 16 CONTRIBUTED CAPITAL CHAPTER OBJECTIVES After...

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