Wallace 3e - Ch. 11.pptx - Financial Accounting for...

This preview shows 1 out of 12 pages.

3e Financial Accounting for Undergraduates © Cambridge Business Publishers CHAPTER 11 STOCKHOLDERS’ EQUITY
Image of page 1

Subscribe to view the full document.

Corporations A corporation is a legal entity. The founders of a corporation prepare and file the articles of incorporation which define its structure, purpose, and authorized stock. If approved by the government, the founders next elect a Board of Directors and adopt the corporation’s bylaws. In order to obtain the funds needed to begin operations, the corporation issues (sells) capital stock to stockholders (owners of the corporation). © Cambridge Business Publishers 2
Image of page 2
Corporate Stakeholders © Cambridge Business Publishers 3
Image of page 3

Subscribe to view the full document.

The Corporate Form - Advantages Separate legal entity Limited liability Transferability of ownership Continuity of existence Capital raising capability Capital raising capability is primarily the result of two of the other advantages, specifically limited liability and transferability of ownership. © Cambridge Business Publishers 4
Image of page 4
The Corporate Form - Disadvantages Organization costs Double taxation Regulation and supervision © Cambridge Business Publishers 5
Image of page 5

Subscribe to view the full document.

Capital Stock Authorized shares The maximum number of shares that may be issued Issued shares Shares that have been sold to stockholders Outstanding shares Issued shares that have been issued and remain in the hands of stockholders rather than having been repurchased by the corporation © Cambridge Business Publishers 6
Image of page 6
Par Value Of little significance today May have some legal implications concerning minimum issuance prices. Legal capital – the minimum amount of contributed capital that must be maintained Usually set at a very low amount such as $0.01 Not related to market value or issuance price. No-par value stock is permitted in many states. © Cambridge Business Publishers 7
Image of page 7

Subscribe to view the full document.

Par Value Example © Cambridge Business Publishers 8
Image of page 8
No Par Value Example © Cambridge Business Publishers 9
Image of page 9

Subscribe to view the full document.

Common Stock The most basic type of capital stock. If only one type present it will be common stock Has voting rights on corporate matters Shares in the corporation’s net income Has a preemptive right to purchase new shares to maintain proportionate ownership in the corporation Has a residual claim on corporate assets in the event of a liquidation. © Cambridge Business Publishers 10
Image of page 10
Preferred Stock Dividend preference Entitled to a dividend before common stockholders If cumulative, then any dividends in arrears must be paid prior to common shareholders receiving any dividends Dividends in arrears are dividends omitted in past years to preferred stockholders Asset distribution preference Preference over common stockholders in corporate liquidations Usually no voting rights Other potential features Convertible into common stock Participating in special dividends Callable by the corporation © Cambridge Business Publishers 11
Image of page 11

Subscribe to view the full document.

Image of page 12
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern