CHAPTER 15 Stockholders' Equity Contributed capital

CHAPTER 15 Stockholders' Equity Contributed capital -...

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Chapter 15 Stockholders’ Equity: Contributed Capital LECTURE OUTLINE This material in this chapter is straight-forward and can be covered in one or two class sessions. Treasury stock transactions under the cost method should be emphasized. The par value method is presented in the Appendix. A. The corporate form of entity. 1. The primary forms of business organization are the proprietorship, the partnership, and the corporation. 2. Corporations may be classified as: a. Public sector. b. Private sector. (1) Nonstock—e.g., churches, charities, colleges. (2) Stock (operate for profit and issue stock). (a) Closed—e.g., family-held corporations. (b) Open (stock widely held). (i) Listed on organized stock exchange. (ii) Unlisted or over-the-counter. 3. Influence of state corporate law—Each of the 50 states has its own business corporation act. These acts are complex and vary in their provisions and definitions. 4. Capital stock system—Each share represents an ownership right with the following privileges: a. To share proportionately in profits or losses. b. To share proportionately in management (vote).
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c. To share proportionately in corporate assets upon liquidation. d. To share proportionately in any new issues of stock in the same class ( preemptive right ). The share system provides easy transferability of ownership interests. 5. Variety of ownership interests. a. Common stock: The residual corporate interest that bears the ultimate risks and receives the benefits. b. Preferred stock: In return for certain preferences to earnings a preferred stockholder may sacrifice a voice in management or the right to share in profits above a stated rate. c. Different classes of common stock which may differ in voting rights. 6. Limited liability: Stockholders cannot lose more than their investment. If stock is purchased below par a contingent liability exists for the stockholder (to the creditors). 7.
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CHAPTER 15 Stockholders' Equity Contributed capital -...

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