chapter 11 teacher version...stock, $100 par, and 100,000 shares of common stock, $20 par. one-half...
TRANSCRIPT
Chapter 11
Teacher Version
1. separate legal existence
2. ownership evidenced by shares of stock
3. ownership easily transferred through sale of stock
4. limited liability
5. owners elect Board of Directors to set policies and
select officers
6. separate taxable entity (double taxation)
7. earnings distributed in form of dividends
File an application of incorporation with the state
States grants charter (Articles of Incorporation) to create corporation
More than half of largest corporations incorporate in the state of Delaware
Examples: Caterpillar incorporated in Delaware; headquarters in Illinois
General Electric incorporated in NY; headquarters in Connecticut
Home Depot incorporated in Delaware; headquarters in Atlanta
Starbucks incorporated in Washington; headquarters in Seattle
Legal fees
taxes
State incorporation fees
License fees
Promotional costs
Recorded as organization expense as incurred
Borrow money= liability
Make a profit from business
shareholders investment= sale of stock to shareholders
2 sources: Paid-in capital which is funds invested by stockholders
Retained Earnings which is the net income and dividends to stockholders
Number issued to issue (sold to stockholders) is stated in charter
Stock in hands of stockholders is referred to as outstanding
Stock certificate samples
Right to vote in business matters
Right to share in distributions of earnings
Right to share in assets upon liquidation
Creditors have no claim against stockholders’ personal assets
Corporations are required to maintain an amount of paid-in capital or legal capital (stated value of the shares issued)
Dividends are not a liability of a corporation until declared by the board of directors
Corporations are not required to pay dividends
COMMON
Equal rights
Most common form of stock
PREFERRED First in line for dividends but not
guaranteed
Stated as $ or %:
$4 preferred, $50 par or 8% preferred, $50 par
Greater chance of receiving dividends than common
A corporation is authorized to issue 10,000 shares of preferred
stock, $100 par, and 100,000 shares of common stock, $20 par.
One-half of each class of authorized shares is issued at par for cash.
If the stock is issued (sold) for a price that is more than its par, the stock has been sold at a premium.
If the stock is issued (sold) for a price that is less than its par, the stock has been sold at a discount.
Caldwell Company issues 2,000 shares of $50 par preferred stock
for cash at $55.
The three conditions a corporation must meet to pay a cash dividend are:
Sufficient retained earnings
Sufficient cash
Formal action by the board of directors
Announcement of dividend
Date of declaration
Date of record
Date of payment
On October 1, the declaration date, Hiber Corporation records the
following entry:
On November 10, the date of record, no entry is required since this
date merely determines which stockholders will receive the dividends.
On December 2, the date of payment, Hiber Corporation records
the payment of the dividends as follows:
On December 15, the board of directors of Hendrix Corporation declares a 5 percent stock dividend of 100,000 shares (2,000,000 shares × 5%) to be issued on January 10 to stockholders of record on December 31. The market price on the declaration date is $31 per share.
Record
declaration
of stock
On January 10, the stock dividend is distributed to stockholders by issuing 100,000 shares of common stock. The following entry records the issue of the stock:
Corporation issues and than reacquires To provide shares for resale to employees
To reissue as bonuses to employees
To support the market price of the stock
Corporation does not Pay dividends on treasury stock
Vote treasury stock
Recognize gains or losses if the treasury stock is reissued
Does not purchase its own stock as an investment
Earnings per common share (EPS), sometimes called basic earnings per share, is the net income per share of common stock outstanding during a period.
Earnings per share is computed as follows: