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Questions and Answers
Which of the following is a characteristic of a corporation?
Which of the following is a characteristic of a corporation?
What distinguishes a public corporation from a private corporation?
What distinguishes a public corporation from a private corporation?
When recording transactions for the issuance of preferred shares, which account is typically credited?
When recording transactions for the issuance of preferred shares, which account is typically credited?
Which of the following best describes retained earnings?
Which of the following best describes retained earnings?
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In preparing financial statements for a corporation, which section would primarily include information on shareholders?
In preparing financial statements for a corporation, which section would primarily include information on shareholders?
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What is the main purpose of declaring cash dividends?
What is the main purpose of declaring cash dividends?
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Which of the following accounting entries is correct when a cash dividend is declared?
Which of the following accounting entries is correct when a cash dividend is declared?
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Which financial statement is prepared to summarize changes in retained earnings over a specific period?
Which financial statement is prepared to summarize changes in retained earnings over a specific period?
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What is the primary right of preferred shareholders regarding dividends?
What is the primary right of preferred shareholders regarding dividends?
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What do cumulative preferred shares guarantee to their shareholders?
What do cumulative preferred shares guarantee to their shareholders?
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What is required for a corporation to pay dividends?
What is required for a corporation to pay dividends?
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What occurs on the declaration date of a dividend?
What occurs on the declaration date of a dividend?
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Which of the following statements is true regarding unpaid dividends in arrears?
Which of the following statements is true regarding unpaid dividends in arrears?
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What is the purpose of a record date in dividend distribution?
What is the purpose of a record date in dividend distribution?
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Which type of dividends is usually paid in common shares?
Which type of dividends is usually paid in common shares?
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What transactions affect retained earnings?
What transactions affect retained earnings?
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Which component is included in the shareholders' equity section of the balance sheet?
Which component is included in the shareholders' equity section of the balance sheet?
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How is the payment date characterized in the dividend process?
How is the payment date characterized in the dividend process?
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What is NOT a characteristic of a corporation?
What is NOT a characteristic of a corporation?
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What does the statement of retained earnings show?
What does the statement of retained earnings show?
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Which one of the following is part of the calculation for return on equity?
Which one of the following is part of the calculation for return on equity?
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Which type of shares typically does not carry voting rights?
Which type of shares typically does not carry voting rights?
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What is required under ASPE regarding retained earnings?
What is required under ASPE regarding retained earnings?
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Which of the following is true regarding accumulated other comprehensive income?
Which of the following is true regarding accumulated other comprehensive income?
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What does retained earnings represent in a corporation?
What does retained earnings represent in a corporation?
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What differentiates legal capital from retained earnings?
What differentiates legal capital from retained earnings?
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What entry is made when shares are issued for cash?
What entry is made when shares are issued for cash?
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What is one key characteristic of preferred shares?
What is one key characteristic of preferred shares?
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Which of the following accounts is attributed to the issuance of shares for services?
Which of the following accounts is attributed to the issuance of shares for services?
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Which component is NOT part of retained earnings?
Which component is NOT part of retained earnings?
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What is the main purpose of the shareholders' section of the balance sheet?
What is the main purpose of the shareholders' section of the balance sheet?
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Which statement is TRUE regarding the market value of shares?
Which statement is TRUE regarding the market value of shares?
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What is a characteristic of a corporation that distinguishes it from other business entities?
What is a characteristic of a corporation that distinguishes it from other business entities?
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What limits a shareholder's liability in a corporation?
What limits a shareholder's liability in a corporation?
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Which of the following statements about shares in a corporation is true?
Which of the following statements about shares in a corporation is true?
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How can a corporation acquire capital?
How can a corporation acquire capital?
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What role does the Board of Directors play in a corporation?
What role does the Board of Directors play in a corporation?
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What does authorized share capital refer to in a corporation?
What does authorized share capital refer to in a corporation?
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What is typically the first public sale of shares called?
What is typically the first public sale of shares called?
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What is the tax status of a corporation?
What is the tax status of a corporation?
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Study Notes
Chapter 13: Introductions to Corporations
- This chapter covers corporations, including their characteristics, share capital, retained earnings, and financial statements.
- Learning goals include describing corporations and classes of shares, recording transactions related to issuing shares and dividends, and preparing corporate financial statements.
- Success criteria include identifying and discussing corporate characteristics, accounting for issuance of shares and dividends, preparing statements of retained earnings, and shareholders' sections of balance sheets.
Characteristics of a Corporation
- Separate legal existence: Corporations act independently from their owners.
- Limited liability of shareholders: Shareholders' financial liability is limited to the amount of their investment.
- Transferable ownership rights: Shares can be bought and sold without affecting the corporation's operating activities.
- Ability to acquire capital: Corporations can raise capital by issuing shares, but this can be more challenging for closely-held corporations.
- Continuous and unlimited life: The business's existence isn't affected by changes in ownership.
- Government regulations: Corporations must comply with specific regulations governing their operations.
- Income tax: Corporations are taxed as separate entities.
- Ownership rights of shareholders: These rights include voting on matters, receiving dividends, and claiming assets in a liquidation.
Corporation Management
- Shareholders manage the corporation through the elected Board of Directors.
- The board decides on operating policies and selects officers like the CEO.
Share Issue Considerations
- Authorized share capital: The maximum number of shares a company is allowed to sell.
- Issue of shares: Shares can be issued directly to investors or via an investment dealer (Initial Public Offering - IPO).
- Market value of shares: Determined by buyers, sellers, and external factors on the secondary market.
- Legal capital: The legal capital amount of a corporation is not distributed to shareholders.
- Retained earnings: Earned capital can be distributed as dividends.
Retained Earnings
- Cumulative total profits less losses & dividends since incorporation.
- Represents part of shareholder's claim on total company assets.
- Two main components: Profit and Dividends (cash distributions to owners).
Corporate Income Statements
- Examples provided on page 16 of income statements. These statements show revenues, expenses, and resulting profit (or loss) for a period.
Textbook Questions
- Students are assigned textbook exercises (BE13-1, BE13-8, BE13-9, E13-11, P13-2A).
Common Shares/Issuing Shares
- Shares are typically issued for cash.
- Shares can be issued for goods/services (at fair market value).
Preferred Shares
- Preferred shareholders have priority over common shareholders for dividends and assets during liquidation.
- Transactions involving preferred shares are recorded in separate accounts.
Dividend Preference
- Preferred shareholders receive dividends before common shareholders.
- Cumulative preferred shares receive any past unpaid dividends.
Dividends
- Pro-rata distribution of a portion of retained earnings.
- Types of dividends: Cash and Stock.
Cash Dividends
- Corporations need enough retained earnings to pay dividends.
- Key dates: Declaration date, Record date, and Payment date.
- Examples provided on pages 30 and 31 illustrate transactions for cash dividends.
Statement of Retained Earnings
- Shows changes in retained earnings during a fiscal year.
- Transactions affecting retained earnings include profits/losses, cash declarations, and stock dividends.
- Example of a statement is on page 35.
Shareholders' Equity
- Shows contributed capital, retained earnings and accumulated other comprehensive income (for IFRS).
- Example statement of shareholders' equity on page 39.
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Description
Explore the essential aspects of corporations in this quiz, including their characteristics, share capital, retained earnings, and financial statements. Test your knowledge on the process of issuing shares, dividends, and preparing corporate financial statements to succeed in understanding corporate accounting.
