Accounting Chapter 11 Flashcards

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Questions and Answers

What is a corporation?

A charity organization
An entity created by law that is separate from its owners (correct)
A type of partnership
A form of government

What is a private corporation?

A private corporation does not offer its stock for public sale and usually has few stockholders.

What defines a public corporation?

A public corporation offers its stock for public sale and can have thousands of stockholders.

What is meant by 'separate legal entity'?

A corporation conducts its affairs with the same rights, duties, and responsibilities of a person. Signup and view all the answers

Stockholders are liable for corporate acts and debts.

False (B) Signup and view all the answers

What are transferable ownership rights?

The transfer of shares from one holder to another has no effect on the corporation unless it causes a change in the directors. Signup and view all the answers

What does 'continuous life' mean for a corporation?

A corporation's life continues indefinitely because it is not tied to the physical lives of its owners. Signup and view all the answers

What is the meaning of 'lack of mutual agency for stockholders'?

Stockholders cannot bind the corporation to contracts since they do not have the power to act as agents. Signup and view all the answers

What is 'ease of capital accumulation'?

Stocks are attractive because buyers are not liable for corporate debt or actions and are usually transferred easily. Signup and view all the answers

What is a disadvantage of corporate characteristics?

Corporations are under government regulation and must meet certain incorporation laws. Signup and view all the answers

What is incorporation?

Incorporation is the process of creating a corporation by obtaining a charter from a state government. Signup and view all the answers

What does the board of directors do?

The board of directors oversees a corporation's affairs and is responsible for managing the company. Signup and view all the answers

What are organization expenses?

The costs to organize a corporation, including legal fees and promoter's fees. Signup and view all the answers

What is a proxy in the context of stockholders?

A proxy is a document that allows stockholders unable to attend meetings to delegate their voting rights to another agent. Signup and view all the answers

What is authorized stock?

The number of shares that a corporation's charter allows it to sell. Signup and view all the answers

What influences the market value of stock?

The price at which stock is bought and sold is influenced by expected future earnings, dividends, growth, and other economic factors. Signup and view all the answers

What is common stock?

Common stock is when all authorized shares have the same rights and characteristics. Signup and view all the answers

What is par value stock?

Par value stock is stock assigned a par value, which is an amount specified per share by the corporation. Signup and view all the answers

What is minimum legal capital?

Minimum legal capital refers to the least amount that buyers of stock must contribute to the corporation. Signup and view all the answers

What is no-par value stock?

No-par value stock is not assigned a value per share by the corporate charter. Signup and view all the answers

What is stated value stock?

Stated value stock is no-par stock to which directors assign a 'stated' value per share. Signup and view all the answers

What is stockholder's equity?

Stockholder's equity is a corporation's equity consisting of paid-in capital and retained earnings. Signup and view all the answers

What is paid-in capital?

Paid-in capital is the total amount of cash and other assets received from stockholders in exchange for stock. Signup and view all the answers

What are retained earnings?

Retained earnings are the cumulative net income not distributed as dividends to stockholders. Signup and view all the answers

How is par value stock issued?

Par value stock can be issued at par, at a premium, or at a discount. Signup and view all the answers

What happens when common stock is issued at par?

Amounts for both assets received and the par value stock issued are recorded. Signup and view all the answers

What occurs when common stock is issued at a premium?

A premium occurs when stock is sold for more than its par value. Signup and view all the answers

What does issuing stock at a discount mean?

Issuing stock at a discount occurs when it is sold for less than its par value. Signup and view all the answers

How is no-par value stock recorded?

When issuing 1,000 shares at $40 per share, cash and common stock would both be credited for $40,000. Signup and view all the answers

What happens when stated value stock is issued?

Its stated value becomes legal capital and is credited to a stated value stock account. Signup and view all the answers

What can a corporation receive in exchange for its stock?

A corporation can receive assets other than cash in exchange for its stock. Signup and view all the answers

What are cash dividends?

Decisions to pay dividends rest among the board of directors, who can choose to retain or distribute cash. Signup and view all the answers

What are the three important dates involving dividend payment?

The three important dates are declaration date, record date, and payment date. Signup and view all the answers

What is the date of declaration?

The date of declaration is when directors vote to declare and pay a dividend. Signup and view all the answers

What is the date of record?

The date of record is when stockholders are identified to receive dividends. Signup and view all the answers

What happens on the date of payment?

The date of payment is when the corporation actually pays the dividends to stockholders. Signup and view all the answers

What is a retained earnings deficit?

A retained earnings deficit arises when a corporation incurs cumulative losses and pays more dividends than earnings. Signup and view all the answers

What is a liquidating cash dividend?

A liquidating cash dividend returns a portion of the capital contributed by stockholders. Signup and view all the answers

What are stock dividends?

Stock dividends are additional shares distributed to stockholders without any payment in return. Signup and view all the answers

What characterizes small stock dividends?

Small stock dividends are distributions less than or equal to 25% of outstanding shares. Signup and view all the answers

What defines large stock dividends?

Large stock dividends are distributions greater than 25% of outstanding shares. Signup and view all the answers

What are stock splits?

Stock splits occur when a corporation decides to split its stocks. Signup and view all the answers

Study Notes

Corporation Basics

A corporation is a legal entity separate from its owners, who are known as stockholders or shareholders.
Owners in a corporation enjoy limited liability, meaning they are not personally liable for corporate debts or actions.

Types of Corporations

Private corporations do not sell stock to the public and typically have a few shareholders.
Public corporations offer stock for public sale and can have thousands of shareholders.

Corporate Characteristics

Corporations operate as separate legal entities with rights, duties, and responsibilities similar to individuals.
Ownership rights in a corporation are transferable without impacting corporate operations unless there is a change in management.

Lifespan and Governance

Corporations have continuous life, independent of the owners' lifespan.
A board of directors, elected by shareholders, oversees a corporation’s management and affairs.

Capital Structure

Authorized stock refers to the maximum number of shares a corporation is allowed to issue.
Stock can be classified as common stock, par value stock, no-par value stock, or stated value stock, each with distinct characteristics.

Paid-In Capital and Retained Earnings

Stockholders contribute capital, known as paid-in capital, in exchange for stock.
Retained earnings represent cumulative net income not distributed as dividends.

Dividend Policies

Corporations can issue cash dividends, which are decided by the board of directors and can, in turn, affect market value.
Important dates in dividend payments include the declaration date, record date, and payment date.
A retained earnings deficit occurs when a corporation incurs losses or pays out more in dividends than has been earned.

Stock Dividends and Splits

Stock dividends distribute additional shares to shareholders without additional payment, often to maintain stock price levels.
Small stock dividends are those less than or equal to 25% of outstanding shares; large stock dividends exceed this threshold and require capitalization of retained earnings.
Stock splits increase the number of shares while decreasing the share price to make stock more affordable.

Issuance of Stock

Stock can be issued at par, at a premium, or at a discount; regulations may prohibit issuing discount stock.
Non-cash assets can also be exchanged for stock during issuance, effectively leveraging the value of assets like land.

Organization Costs

Organization expenses are costs incurred in forming a corporation, including legal and promoter fees, which must be accounted for.

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Description

Test your knowledge on key terms from Accounting Chapter 11. This quiz includes definitions for major concepts such as corporation, private corporation, and public corporation. Perfect for students looking to reinforce their understanding of corporate structures.