10 nov acct chapter 11 in class notes

10 nov acct chapter 11 in class notes - Chapter 11 In Class...

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Chapter 11 In Class Notes: Reporting & Analyzing Equity Corporate form of organization An entity created by law Existence is separate from owners Has rights and privileges Ownership can be Privately held: Private Company Owners are select individuals Publicly held: Public Company Ownership is available to the public at large Advantages vs. Disadvantages of Corporate Form of Business Advantages Separate legal entity: can enter into contracts in its own name Limited liability of stockholders: a shareholder is liable only to the extent of their investment into the corporation (# of shares) Transferable ownership rights: if you don’t want to hold onto ownership, you can sell your shares to get rid of it Continuous life: the corporation is going to go on even after owners die Lack of mutual agency for stockholders: no one stockholder can bind another stockholder by his or her acts Ease of capital accumulation: anyone can own shares of stock so you can accumulate capital easily Disadvantages Governmental regulation: highly regulated by the government - cumbersome Corporate taxation: double taxation – taxed heavily for net income and the net income that is distributed to the shareholders is taxed again
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Forming a corporation Application made to the state government State government issues “Charter” (articles of incorporation) and a corporation is formed Investors purchase corporations stock Stockholders elect a Board of Directors Organization Costs (legal fees, promoters fees…etc) are expensed as incurred Organizing and Managing a corporation Stockholders – have ultimate control, but not involved with day-to-day business Stockholders usually meet once a year Rights of stockholders Vote a stockholder’s meetings Sell stock Pre-emptive right to purchase additional shares of stock Receive dividends, if declared Share equally in any assets remaining after creditors are paid in a liquidation Board of directors – selected by a vote of the stockholders They have the overall responsibility for managing the company President: Chief Executive Officer (CEO) Secretary, Vice president Finance, vice president production, VP marketing Stock Basics 3 categories of stock…
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authorized : the number of shares a corporation has been authorized to issue based upon the charter (permission from the government) issued : number of authorized shares that the corporation has offered to public they may not necessarily need/want all the authorized shares at once issued shares cannot be greater than authorized shares outstanding: the issued shares that are currently held by shareholders difference between issued and outstanding is treasury stock – shares that the corporation holds selling (issuing) stock par value : arbitrary amount given to each share of stock when it’s authorized Home Depot Par value: $0.05 Market price : is the amount that each share of stock will sell for in market Home Depot Inc. Market value: Par value NOT EQUAL to market price
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