Chapter 11 - Chapter 11 Class Notes Reporting and...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
We do not cover pp. 501-504 of this chapter Introduction:    Businesses are financed one of two ways – either through debt financing (Chapter 10)  or equity financing (Chapter 11).   Debt Financing – Loans repaid with interest and the relationship ends with the  repayment; Company is liable for the amount of the loan. Equity Financing – Company has no responsibility to repay; Investor takes the  risk and is rewarded by the company’s future success. Corporate Ownership Characteristics of a Corporation:   (review from Chapter 1) A legal entity chartered by a state. Legally distinct from its owners. Accorded the same rights as individuals: Can conduct business. Can be sued. Can enter into contracts. Can own property. Ownership is represented by transferable shares of stock. Advantages of a Corporation: Limited Liability  – the maximum financial loss an owner can sustain is their  investment in the corporation Chapter 11 Class Notes Reporting and Interpreting Stockholders’ Equity Compiled by: Janice H. Fergusson, CPA Certain Materials used with permission of The McGraw-Hill Companies, Inc.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
ACCT 225 – Fall 2008 Page 2 of 12 Chapter 11 Easy Transferability of Ownership  – shares of stock are bought,  sold, and transferred without affecting the legal status of the corporation  Ability to Raise Large Amounts of Capital  – selling shares of stock permit  many investors (large and small) to participate in the ownership of a corporation Disadvantages of a Corporation: Double Taxation  – taxed independently of its owners which causes corporate  profits paid out in dividends to be taxed twice Close Government Regulation  – government monitors certain corporate  activities Common Stock versus Preferred Stock Rights of Common Stock Ownership:   (pages 493-494) Right to vote in corporate matters such as the election of The board of directors or the undertaking of major actions such as the purchase of  another company. Right to receive dividends  if they are paid. Rights to ownership (residual claim) of all corporate assets once obligations to everyone else  have been satisfied.  Preemptive right  which permits existing stockholders to  purchase additional shares whenever stock is issued by the corporation. Preferred Stock Ownership:  (page 504-505) No voting rights , so preferred stockholders don’t elect the  board of directors  Entitled to dividend and liquidation preferences over common   stockholders.
Background image of page 2
ACCT 225 – Fall 2008 Page 3 of 12 Chapter 11 Fixed cash dividend , so when a company does well, preferred stockholders don’t get to share in the success Accounting for Stock Transactions Some Important Terms: Par Value
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 12

Chapter 11 - Chapter 11 Class Notes Reporting and...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online