EYK2_2 - E x t e n d Y o u r K n o w l e d g e 2 - 2 : C h...

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Unformatted text preview: E x t e n d Y o u r K n o w l e d g e 2 - 2 : C h a p t e r 2 C o r p o r a t e S u p p l e m e n t In the early chapters, we use the accounting model based on a sole (or single) pro- prietorship. Accounting for corporations is discussed in detail in Chapters 15 and 16. The corporate supplement caters to those individuals who desire an introduc- tion to accounting for corporations at this early stage. C o r p o r a t e F o r m o f O r g a n i z a t i o n A corporation is a separate legal entity chartered (or incorporated) under federal or provincial laws. Unlike proprietorships, corporations are legally separate and distinct from their owners. The owners of a corporation are known as sharehold- ers . The equity or ownership of each shareholder is represented by units called shares . For example, the owners or shareholders of WestJet, one of two corpora- tions featured in Appendix I of the textbook, held a total of 74,899,609 shares as at December 31, 2002 (see page I-22 of the textbook). One shareholder may own 100 shares, while another owns 1,000,000 shares. The number of shares owned by a shareholder represents his or her percentage ownership of the corporation. In this situation, a shareholder having 1,000,000 shares signifies that the shareholder owns 1.34% (1,000,000 74,899,609) of WestJet. A corporation sells or issues shares to buyers either directly or indirectly. When a corporation issues (sells) only one class of shares, the shares are called common shares . We discuss other classes of shares in Chapter 15. There are a number of differences between the financial statements of a sole proprietorship and a corporation. 1. Naming of the equity section of the balance sheet. The equity section of a sole proprietorship is known as Owners Equity (see Exhibit 2.4 on page 36 of the textbook). On a corporate balance sheet, the equity section is called Shareholders Equity (see Exhibit CS2.4). 2. Components of the equity section of the balance sheet. A proprietorships bal- ance sheet lists the capital balance beside the single owners name as shown in Exhibit 2.4 on page 36 for Carol Finlay, capital. The names of a corpora- tions shareholders are not listed in the balance sheet. Instead, the total shareholders equity is divided into contributed capital and retained earn- ings (see Exhibit CS2.4). Contributed capital is created by the shareholders investments. When a corporation issues shares to shareholders, the pro- ceeds collected by the corporation represent the shareholders investment or capital contributed by the shareholders , hence the term contributed capital . Retained earnings are the total earnings actually kept (or retained ) by the corporation for the purpose of reinvestment....
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EYK2_2 - E x t e n d Y o u r K n o w l e d g e 2 - 2 : C h...

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