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Questions and Answers
Lower Risk for Creditors: If a company has more equity, it's less risky for ______. This means they'll charge lower interest rates on loans.
Lower Risk for Creditors: If a company has more equity, it's less risky for ______. This means they'll charge lower interest rates on loans.
lenders
Authorized Stock: This is the maximum number of shares a company can sell to ______.
Authorized Stock: This is the maximum number of shares a company can sell to ______.
investors
Issued Stock: This is the amount of authorized stock that has been sold to ______ and paid for, either with cash, property, or services.
Issued Stock: This is the amount of authorized stock that has been sold to ______ and paid for, either with cash, property, or services.
investors
Reacquired Stock: These are shares that the company buys back from ______, either as a gift or by purchasing them back.
Reacquired Stock: These are shares that the company buys back from ______, either as a gift or by purchasing them back.
Outstanding Stock: This is the portion of issued stock that is still held by ______ and hasn't been bought back by the company.
Outstanding Stock: This is the portion of issued stock that is still held by ______ and hasn't been bought back by the company.
Common Stock: Represents the basic issue of shares with the following rights: Voting rights: Shareholders elect directors who hire ______.
Common Stock: Represents the basic issue of shares with the following rights: Voting rights: Shareholders elect directors who hire ______.
Cumulative voting: Shareholders may cast all votes for one member of the ______.
Cumulative voting: Shareholders may cast all votes for one member of the ______.
Proxy voting: Shareholders grant authority to another individual to vote their ______.
Proxy voting: Shareholders grant authority to another individual to vote their ______.
Preferred Stock: A class of stock with preferences over common shares, including: No voting rights: the right to elect is taken away for this class of ______.
Preferred Stock: A class of stock with preferences over common shares, including: No voting rights: the right to elect is taken away for this class of ______.
Right to share in profits and dividends as residual claimants after preferred ______.
Right to share in profits and dividends as residual claimants after preferred ______.
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Study Notes
Sole Proprietorship
- Owner's equity is represented as Alpha, Capital.
- The capital of a sole proprietorship is affected by net income and drawings.
- The formula for owner's equity is: Capital + Net Income - Drawings = Total Owner's Equity.
Partnership
- Partners' equity represents the ownership interest of partners in a partnership.
- The total partners' equity is the sum of individual partner's equity.
Corporation
- Shareholders' equity represents the ownership interest of shareholders in a corporation.
- Contributed capital is the amount of money shareholders invest in the corporation.
- Retained earnings are profits reinvested in the business.
- Total stockholders' equity is the sum of contributed capital and retained earnings.
Characteristics of Corporation
- No obligation for dividends: companies are not required to pay dividends to shareholders.
- No maturity date: shares do not have to be paid back like loans do.
Types of Corporations
- Parent corporation: a company that owns more than half of another company.
- Subsidiary corporation: a company owned and controlled by another company.
- Domestic corporation: a company created under the laws of the Philippines.
- Foreign corporation: a company formed under laws from a country other than the Philippines.
- Close corporation: a company limited to selected people or family members.
- Open corporation: a company open to anyone who wants to become a shareholder.
Proportionate Interest
- Proportionate interest is the percentage of shares owned by a shareholder.
- The formula for proportionate interest is: (Shares Owned ÷ Shares Outstanding).
Dividends
- Dividends are payments made to shareholders.
- Dividends may be classified as cash dividends, which are paid out to shareholders.
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