Corporations and Financial Principles Quiz

A corporation is a distinct entity separate from its owners (shareholders).

Shareholders' liability is limited to their investment in the corporation. They're not personally responsible for its debts.

Ownership shares in a corporation (stock) can easily be sold or transferred.

Corporations can raise large sums of money by issuing stock.

A corporation's existence isn't tied to the lives of its owners; it continues even if owners leave or die.

Corporations have a structure for managing the business, typically involving a board of directors and officers.

Corporations are subject to various regulations imposed by governmental authorities.

Corporations are often subject to specific corporate taxes, beyond personal taxes for owners.

The process of issuing preferred stock, similar to common stock issuance, but with potentially different features, like fixed dividends or preference in liquidation.

Preferred stock with a specified monetary value per share, for accounting purposes.

The amount received from issuing stock that exceeds the par value per share.

The process of issuing common stock, a basic form of ownership in a corporation.

Expenses incurred during the formation and initial stages of a business.

The process of winding down a business and selling its assets.

A formal record of transacting an asset for stock issuance (i.e common stock or preferred stock).

A characteristic of stock, usually related to common stock that gives holders influence over corporate decisions.

Shares of a company's own stock that have been repurchased by the company and are held in the treasury.

The process of a company buying back its own outstanding shares from the open market, reducing the number of shares outstanding.

Distributions of a company's profits to shareholders paid in cash.

The formal action by a company's Board of Directors to approve the payment of dividends to shareholders.

The accumulated profits of a company that have not been distributed as dividends.

Companies buy back their own stock for various reasons, such as to increase earnings per share, signal confidence, or prevent a hostile takeover.

A company buying back its own shares can make it less appealing for another company to acquire it by reducing its cash reserves and making it a less attractive target.

To pay cash dividends, a company needs retained earnings, adequate cash on hand, and a declaration of dividends by the Board of Directors.

A dividend paid in the form of additional shares of stock instead of cash, increasing the number of outstanding shares but not changing total stockholders' equity.

A corporate action that increases the number of outstanding shares by dividing each existing share into multiple shares, typically resulting in a lower price per share but maintaining the total market value.

The increase in retained earnings represents the portion of net income that the company has kept and reinvested in the business.

The amount of money investors contribute to the company in exchange for shares of stock.

The total value of the shareholders' ownership in the company, including paid-in capital, retained earnings, and any other equity accounts.

An arbitrary nominal value assigned to each share of stock, which is typically set low and doesn't reflect the actual market value.

A stock dividend distributes additional shares of stock to existing shareholders, which increases the number of shares outstanding, but does not change the total value of stockholders' equity or the par value per share.

A stock split reduces the par value per share and increases the number of outstanding shares, but maintains the total value of stockholders' equity.

When a company sells treasury stock for a price higher than the cost at which it was bought back, the difference is recorded as "Paid-in Capital from Treasury Stock".

If a company sells treasury stock for a price lower than the purchase cost, the difference is first deducted from "Paid-in Capital from Treasury Stock". If the difference exceeds the credit balance, the rest is deducted from Retained Earnings.

Transactions involving treasury stock don't affect the company's net income. They're not seen as gains or losses on the income statement.

Cash: 10,000 (received from sale) Treasury Stock: 8,000 (cost of shares) Paid-in Capital from Treasury Stock: 2,000 (difference)

Cash: 5,600 (received from sale) Paid-in Capital from Treasury Stock: 800 (reducing the balance from previous transactions) Treasury Stock: 6,400 (Cost of shares)

Cash: 15,400 (received from sale) Paid-in Capital from Treasury Stock: 1,200 (reducing the balance from previous transactions) Retained Earnings: 1,000 (to cover the remaining loss) Treasury Stock: 17,600 (Cost of shares)

Using Retained Earnings to cover the loss on sale of treasury stock reduces the company's retained earnings balance, which is the accumulated profits of the company.

A loss that is not included in net income but affects the company's comprehensive income. It represents gains or losses that are not part of regular operations.

A type of stock that offers certain privileges over common stock, such as guaranteed dividend payments or preference in liquidation.

The accumulated portion of a company's net income that has not been distributed to shareholders as dividends.

It presents a detailed breakdown of the company's ownership structure, including the value of its common and preferred stock, retained earnings, and other equity accounts.

The proportion of a company's net earnings paid out to its shareholders as dividends. It measures the percentage of earnings distributed.

A financial metric that measures how much profit a company generates for each dollar invested by its common stockholders. It shows the efficiency of investments.