Kế toán, kiểm toán - Chapter eight: Proprietorships, partnerships, and corporations

Chapter EightProprietorships, Partnerships, and Corporations© 2015 McGraw-Hill Education.Corporate AdvantagesSeparate legal EntityLimited liability of stockholdersContinuous lifeManagement StructureEasily transferable ownership rightsAbility to raise capitalCorporate DisadvantagesGovernmental regulationCorporate double taxationComparing Corporations with Proprietorships and Partnerships 8-2Appearance of Capital Structure in Financial StatementsThe ownership interest (equity)in a business is composed of: Owner/investor contributions. Retained earnings. 8-3Legal capital is the amount of capital, required by the state of incorporation, that must remain invested in the business.Par Value Nominal AmountLegal capitalCharacteristics of Capital stock 8-4Some states do notrequire a par value to be stated in the charter.No-par StockCharacteristics of Capital stock 8-5Par value is an arbitrary amount assigned to each share of stock when it is authorized.Market price is the amount that each share of stock will sell for in the market.Characteristics of Capital stock 8-6Authorized, Issued, and Outstanding Capital StockThe maximum number of shares of capital stock that can be sold to the public. AuthorizedShares 8-7Authorized, Issued, and Outstanding Capital StockIssued shares are authorized shares of stock that have been sold.Unissued shares are authorized shares of stock that never have been sold.AuthorizedShares 8-8Authorized, Issued, and Outstanding Capital StockUnissuedSharesTreasurySharesOutstandingSharesIssuedSharesTreasury shares are issued shares that have been reacquired by the corporation.Outstanding shares are issued shares that are owned by stockholders.AuthorizedShares 8-9Common stockholders have the rights to: Buy and sell stock. Share in the distribution of profits. Share in the distribution of assets in the case of liquidation. Vote on significant matters that affect the corporate charter. Participate in the election of directors.Classes of Stock – Common Stock 8-10A separate class of stock, typically having priority over common shares in . . .Dividend distributions.Distribution of assets in case of liquidation.Classes of Stock – Preferred StockUsually has a stated dividend rate.Normally has no voting rights. 8-11NoncumulativeCumulativeDividends in arrears must be paid before dividends may be paid on common stock.Undeclared dividends from current and prior years do not have to be paid in future years.Most preferred stock is cumulative.Preferred Stock Dividends 8-12Issuing Stock, $10 Par ValueNelson, Incorporated issued 100 shares of$10 par value stock for $22 per share.The effects on the financial statements would be: 100 shares × $22 per share = $2,200100 shares × $10 par value = $1,000 8-13Issuing Stock, $20 Par ValueAssume that Nelson has another class ofcommon stock, $20 par value Class B.The company issues 150 shares of Class Bcommon stock at $25 per share.The effects on the financial statements would be as follows: 150 shares × $25 per share = $3,750150 shares × $20 par value = $3,000 8-14Assume that Nelson issues 100 shares of 7 percentcumulative preferred stock with a stated value of$10 per share at a price of $22 per share.The effects on the financial statements would be as follows:Issuing Stock, $10 Stated Value100 shares × $22 per share = $2,200100 shares × $10 par value = $1,000 8-15Issuing Stock with No Par ValueAssume that Nelson issues 100 shares of nopar common stock at a price of $22 per share.The effects on the financial statements would be as follows:100 shares × $22 per share = $2,200 8-16Financial Statement Presentation 8-17No voting or dividend rightsContra equity accountWhen stock is reacquired, the corporation records the treasury stock at cost.Treasury shares are issued shares that have been reacquired by the corporation.Treasury Stock 8-18Three important datesCash DividendsDate of RecordNo entryrequired.Payment DateRecord payment ofcash to stockholders.Declaration DateRecord liabilityfor dividend.Dividends 8-19Stock DividendsDistribution of additional sharesof stock to stockholders.No change in total stockholders’ equity.No change inpar values.All stockholders retain same percentage ownership. 8-20Stock SplitsStock splits replace existing shares with a greater number of new shares.Companies use stock splits to reduce market price per share of their outstanding stock.The number of outstanding shares increase and par value is decreased proportionately.Retained earnings is not affected. 8-21End of Chapter Eight 8-22