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Chapter13Slides

Chapter13Slides - Chapter13:EquityFinancing ACCT4050...

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Click to edit Master subtitle style  4/7/11  ACCT 4050 Professor Dennis Chambers ACCT 4050 Chapter 13: Equity Financing
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 4/7/11  ACCT 4050 Equity Section 22
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 4/7/11  ACCT 4050 Corporate Ownership Corporation is a legal entity—considered an artificial  person for the purposes of most legal actions Owners: Contribute capital and get shares of stock in return Represented by an elected Board of Directors Kinds of stock: Common stock Preferred stock 33
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 4/7/11  ACCT 4050 Common Stockholders “True” owners of the corporation Residual position Own all net assets  after  other obligations are paid Voting power Elect the Board of Directors that run the corporation Common stock Evidence of ownership interest in the corporation Par Value 44
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 4/7/11  ACCT 4050 Preferred Stock Superior position to common stock Preferred stockholders get paid before any common dividends  paid Liquidation preference—if the corporation goes bankrupt,  preferred shareholders get paid before common shareholders  get anything Fewer rights than common stock Dividends usually fixed to a certain amount No voting rights—can’t vote for Board or in proxy votes Issued with a Par Value 55
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 4/7/11  ACCT 4050 Varieties of Preferred Stock Cumulative vs. Noncumulative Cumulative preferred dividends accumulate even if not  declared or paid All accumulated dividends must be paid before any common  dividends paid Noncumulative preferred stock loses right to a dividend if it  isn’t declared in a given year Convertible Preferred Shareholders have a right to convert their preferred shares into  a set number of common shares 66
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 4/7/11  ACCT 4050 Issuance of Capital Stock  for Cash Usually stock is issued in exchange for cash Example: Ajax Corporation issues 100,000 shares of common  stock with par value of $1, for $20 per share Cash 2,000,000 Common Stock 100,000 Paid-In Capital in Excess of Par 77
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 4/7/11  ACCT 4050 Stock Issued for Other Than Cash Value stock issue at the fair value of the stock or the  contributed asset or service, whichever is more  evident Example: Ajax issued 1,000 shares of common stock with $1  par, in exchange for 500 hours of legal services.  The  attorney normally charges $100 per hour. Legal Expense 50,000 88
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 4/7/11  ACCT 4050 Stock Repurchases Corporation frequently reacquire their own shares Need shares to grant to employees as compensation Invest excess cash—they believe their own stock is a good  investment
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