Accounting 312- chapter 13 - Accounting 312 Chapter 13-...

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Accounting 312 Chapter 13- Stockholder’s Equity I. The Corporate Form of Organization A. Characteristics of the Corporation 1. influence of state corporate law 2. use of the capital stock or share system 3. development of a variety of ownership interests B. State Corporate Law 1. anyone who wishes to establish a corporation must submit articles of incorporation to the state w 2. state issues a corp charter which recognizes the co as a legal entity subject to state law a. only incorporated in one state, even if global 3. acctg for SE follows provisions of incorporation C. Capital Stock or Share System 1. SE in a corp consists of a large number of units or shares where each share exactly equals another share 2. each share has certain rights and privileges a. share proportionately in profits and losses b. share proportionately in management (right to vote for directors) c. share proportionately in corporate assets upon liquidation d. share proportionately in any new issues of stock of the same class- preemptive right i. used to protect each stockholder’s proportional interest- protects from involuntary dilution of ownership interest 3. can transfer interest in a co to another investor without obtaining consent of the co or other stockholders 4. use registration and transfer agents who specialize in providing services for recording and transferring stock D. variety of ownership 1. common stock- residual corporate interest that bears the ultimate risks of loss and receives the benefits of success a. not guaranteed dividends of assets upon dissolution b. control management of corp and profit most if the co is successful 2. preferred stock- in return for any special preference, the preferred stockholder always sacrifices some of the inherent rights of common stock ownership a. give the preferred stockholders a prior claim on earnings (assures a dividend) but gives up right to vote or right to share in profits beyond stated rate II. Corporate Capital A. Parts of Stockholder’s Equity 1. capital stock 2. additional paid in capital 3. retained earnings B. Contributed paid in capital 1. comprised of capital stock plus additional paid in capital 2. total amt paid in on capital stock-amt provided by stockholders to the corporation for use in the business 3. includes items such as the par value of all outstanding stock and premiums less discounts on issuance C. Retained Earnings 1. represents the earned capital of the company 2. earned cap is the capital that develops from profitable operations D. Issuance of Stock 1. procedure a. state authorizes stock b. corp offers chares for sale, entering into contracts 1
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c. corp issues shares 2. par value stock a. no relationship to fair mkt value b. account for preferred or common stock c. additional paid in capital (aka paid in cap excess of par) – this account indicates any excess over par value paid in by stockholders in return for the shares issued to them i. become part of the corp’s additional paid in cap and stockholder ahs no greater
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This note was uploaded on 01/23/2011 for the course ACCOUNTING acc312 taught by Professor Halwhite during the Fall '10 term at University of Michigan.

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Accounting 312- chapter 13 - Accounting 312 Chapter 13-...

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