Chapter 18 NEW

Chapter 18 NEW - Stockholders' Equity Chapter 18 Prepared...

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Accounting 124/Equity 1 Stockholders’ Equity Chapter 18 Prepared by: Prof. Elizabeth Venuti
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Accounting 124/Equity 2 Primary forms of business  organizations Proprietorship Partnership Corporation
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Accounting 124/Equity 3 Formation of a corporation Company files articles of incorporation with a State. A corporate charter is granted by the state in which a business incorporates. The corporate charter describes: The nature of the firm’s business, The number and classes of shares authorized to be issued, and The composition of the initial board of directors. Shares of stock are issued.
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Accounting 124/Equity 4 incorporation Advantages: Ease of raising capital. Ease of ownership transfer. Limited liability. Continuous existence. Disadvantages: Double taxation. Government regulation.
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Accounting 124/Equity 5 Corporate classifications Non-stock (e.g., churches, charities, colleges, some government agencies) Stock (operate for profit and issue stock) Closed (e.g., family-held) Open (widely-held) Listed on organized stock exchange Unlisted or over-the-counter
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Accounting 124/Equity 6 Sources of stockholders’ equity Contributed capital (stockholders’ investments) Common stock Preferred stock Paid-in capital in excess of par or stated value Earned capital Retained earnings Accumulated other comprehensive income
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Accounting 124/Equity 7 Common Stock Each share of common stock represents an ownership right with the privilege to share proportionately in: Corporate profits or losses Management (by voting) Corporate assets upon liquidation Any new issues of stock in the same class (preemptive right)
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Accounting 124/Equity 8 Common Stock Attributes Residual corporate interest Ultimate risk of loss Largest opportunity for gain True owners of the corporation Dividends determined by Board of Directors Legal capital Par value, stated value or no par Treasury Stock
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Accounting 124/Equity 9 Preferred stock A class of non-voting stock that possesses preferences or features not possessed by common stock. Dividend rate stated as a percentage of par or stated value or as a dollar amount per share Types of preferences: Dividend preferences Preference as to assets in event of liquidation Types of features Cumulative Redeemable Convertible Callable Participating
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Accounting 124/Equity 10 Accounting for the issuance of stock Issue 20,000 shares of $5 par value common stock for $16 per share. Issue 4,000 shares of $100 par value preferred
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Chapter 18 NEW - Stockholders' Equity Chapter 18 Prepared...

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