Chapter 10_Stockholders' Equity - ss.docx - Chapter 10...

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Chapter 10Stockholders’ EquityReview from Chapter 9Some of the funds needed to pay for a company’s growth can come from the profits generated byoperations. This is a source of internal financing. Funds coming from those outside the company aresources of external financing.Debt financing - refers to borrowing money from creditors (liabilities – Notes Payable, Bonds Payable)Advantage: Interest on borrowed funds is tax-deductibleDisadvantage: Company has to pay back principal with interestEquity financing - refers to obtaining investment from stockholders (equity)Advantage: Does not have to be paid back.Disadvantage: Give up ownership and control. Dividends are not tax-deductible.Equity financing through an IPO occurs when a company ______________________________________________________________. Issuing stock involves the company ________________________________investors. In return, these investors receive __________________________________________________________________________________________.Illustration 10-1 (page 490)I. Invested CapitalInvested capital (paid-in capital) is the amount of money paid into a company by its owners.A corporation is ____________________________________________________________________________________________________________________________________________________________.The articles of incorporation describe (a) the nature of the firm’s business activities, (b) the shares ofstock to be issued, and (c) the initial board of directors.Who controls a corporation? _______________________ How? __________________________________________________________________________________________________________________________________________________________________________________________________________Principles of Accounting I – ACCT 2010Page | 1
Advantages of a Corporation1._____________________2._____________________3._____________________Disadvantages of a Corporation1._____________________2._____________________3._____________________Number of SharesAuthorized Stock: _____________________________________________________________________________________________________________________________________________Issued Stock: _________________________________________________________________________________________________________________________________________________Treasury Stock: _______________________________________________________________________________________________________________________________________________Outstanding Stock: ____________________________________________________________________________________________________________________________________________Illustration 10-6 (page 494)Stockholder RightsEach share of stock represents one unit of ownership. Corporations can issue different classes of stock,common or preferred.Common Stock –the basic ownership of a corporation with rights noted below from Illustration 10-4.

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