Questions and Answers
What is a corporation?
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'?
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Stockholders are liable for corporate acts and debts.
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What are transferable ownership rights?
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What does 'continuous life' mean for a corporation?
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What is the meaning of 'lack of mutual agency for stockholders'?
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What is 'ease of capital accumulation'?
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What is a disadvantage of corporate characteristics?
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What is incorporation?
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What does the board of directors do?
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What are organization expenses?
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What is a proxy in the context of stockholders?
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What is authorized stock?
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What influences the market value of stock?
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What is common stock?
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What is par value stock?
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What is minimum legal capital?
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What is no-par value stock?
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What is stated value stock?
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What is stockholder's equity?
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What is paid-in capital?
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What are retained earnings?
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How is par value stock issued?
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What happens when common stock is issued at par?
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What occurs when common stock is issued at a premium?
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What does issuing stock at a discount mean?
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How is no-par value stock recorded?
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What happens when stated value stock is issued?
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What can a corporation receive in exchange for its stock?
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What are cash dividends?
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What are the three important dates involving dividend payment?
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What is the date of declaration?
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What is the date of record?
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What happens on the date of payment?
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What is a retained earnings deficit?
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What is a liquidating cash dividend?
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What are stock dividends?
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What characterizes small stock dividends?
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What defines large stock dividends?
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What are stock splits?
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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.