Warren_23e__AISE_IM_Ch13 - chapter 13 Corporations:...

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chapter 13 Corporations: Organization, Stock Transactions, and Dividends ______________________________________________ OPENING COMMENTS This chapter explains the characteristics of a corporation, also known as a “C” Corporation. It also introduces many of the terms related to stock: common, preferred, par value, stated value, no-par, cumulative, noncumulative, participating, and nonparticipating. Additional topics covered in Chapter 13 are treasury stock (cost method), stock splits, and dividends. After studying the chapter, your students should be able to: 1. Describe the nature of the corporate form of organization. 2. Describe the two main sources of stockholders’ equity. 3. Describe and illustrate the characteristics of stock, classes of stock, and entries for issuing stock. 4. Describe and illustrate the accounting for cash dividends and stock dividends. 5. Describe and illustrate the accounting for treasury stock transactions. 6. Describe and illustrate the reporting of stockholders’ equity. 7. Describe the effect of stock splits on corporate financial statements. STUDENT FAQS Why is there a difference between issued and outstanding stock? When you sell stock above par value, why can you not have a gain instead of having to put it in paid- in capital in excess of par value? 205 This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher.
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206 Chapter 13 Corporations: Organization, Stock Transactions, and Dividends This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied, or distributed without the prior consent of the publisher. Treasury stock cannot be a good name for ownership of stock in our own company. Can we call it by some other name, and why can we not record a gain/loss on the sell of treasury stock? Treasury stock is not an asset, but I do not understand why. Can you explain? Does common stock always have to be sold before preferred stock? Why is the normal balance for treasury stock a debit? By using par or stated value, aren’t corporations just playing around with the value of their stock? Would it be better for a company to issue 10 shares of $1,000 par value stock or 10,000 shares of $1 par value stock? Why can’t you pay dividends on treasury stock? Why would a company consider issuing preferred stock? If it needs to raise capital, wouldn’t it be better just to borrow the money from a bank? If “dividends in arrears” means we still owe the preferred shareholders a dividend, why are we not required to book it as a liability? After all, isn’t it a debt or obligation of the company? What is the most number of shares a company can issue?
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This note was uploaded on 09/25/2010 for the course FEUI ACCT01 taught by Professor Prof.steve during the Spring '10 term at Indonesian Computer University.

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Warren_23e__AISE_IM_Ch13 - chapter 13 Corporations:...

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