Final Exam Study Guide

Final Exam Study Guide - Final Exam Concepts New Topics...

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Final Exam Concepts New Topics Types of Stock Capital Stock : generic term for explaining the concept of stock; specifically stock will either be common or preferred Common Stock : a portion of ownership in the business, affords voting rights, and may or may not receive a dividend Preferred Stock : additional ownership in the business, doesn’t afford voting rights, DOES receive a dividend rate that is set, has a preference in dividends and liquidation Authorized Stock : the total number of shares available to sell, stated in the company’s articles of incorporation; the number of shares that the Secretary of State has set as a maximum that is allowed to be sold Issued Stock : the number of shares sold to investors; includes treasury shares Outstanding Stock : the number of shares held by investors less treasury shares; these are the shares that vote and receive a dividend Treasury Stock : a corporation’s own stock that it has reacquired, it has not been cancelled, but rather is being held by the company for resale at a later date; contra- equity account, has a debt balance and reduces S.E., recorded at cost Stockholders’ Equity Section of the Balance Sheet : see “Equity Financing” Packet Par : amount credited to the Common Stock or Preferred Stock accounts Entries to issue common and preferred stock : Example 1: Issuing Common Stock We issue 10,000 shares of $1 par Common Stock at $4 per share. Journal Entry Cash (10,000 x 4) 40,000 Common Stock (10,000 x 1) 10,000 Paid-in Capital in Excess of Par, CS 30,000 Example 2: Issuing Preferred Stock We issue 100 shares of 5% $100 par Preferred Stock at $105 per share. Journal Entry Cash (100 x 105) 10,500 Preferred Stock (100 x 100) 10,000 Paid-in Capital in Excess of Par, PS 500 Example 3: Exchanging Stock for Non-Cash Assets You want to exchange land for your stock. If your stock is currently traded, use the market value of the stock. If not, hire appraisers and let the board come to a consensus on the value. A farmer has an acreage that your firm would like to buy as a future plant site
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but can’t afford. You offer the farmer 10,000 shares of your common stock that has a par
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Final Exam Study Guide - Final Exam Concepts New Topics...

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