Finance Chapter 11: Stockholders' Equity

Questions and Answers

What is a corporation?

A legal entity created under the laws of a state or the federal government.

What are articles of incorporation?

A document prepared by the founders of a corporation that sets forth the structure and purpose of the corporation.

What is par value?

An amount specified in the corporate charter for each class of stock imprinted on stock certificates.

No-par value stock has a specified par value.

False Signup and view all the answers

What is stated value?

A nominal amount assigned to each share of no-par value stock. Signup and view all the answers

What are authorized shares?

The maximum number of shares in a class of stock that a corporation may issue. Signup and view all the answers

What are issued shares?

Shares of stock that have been sold and issued to stockholders. Signup and view all the answers

What are outstanding shares?

Shares of stock that are currently held by stockholders. Signup and view all the answers

What is common stock?

The basic ownership class of capital stock with voting rights and a share in earnings. Signup and view all the answers

What is the preemptive right?

The right of a stockholder to maintain their ownership interest by purchasing shares in any new issue. Signup and view all the answers

What is preferred stock?

A class of capital stock with priority over common stock in dividend payments. Signup and view all the answers

What does cumulative mean in relation to preferred stock?

Dividends-in arrears must be paid before any dividends can be paid on common stock. Signup and view all the answers

What does convertible mean in relation to preferred stock?

Preferred stock can be converted into common stock at a specified conversion rate. Signup and view all the answers

What does participating mean in relation to preferred stock?

Preferred stock can share special dividend distributions with common stock. Signup and view all the answers

What does callable mean in relation to preferred stock?

Preferred stock can be redeemed by the issuing corporation at a specified price. Signup and view all the answers

What is paid-in capital?

The amount of capital contributed by stockholders in excess of par value. Signup and view all the answers

What are retained earnings?

The earnings of a corporation that have not been paid out as dividends. Signup and view all the answers

What is a forward stock split?

Additional shares issued to current stockholders without changing equity balances. Signup and view all the answers

What is treasury stock?

Shares acquired by a corporation for purposes other than retiring the stock. Signup and view all the answers

What are dividends?

Distribution of assets, usually cash or stock, from a corporation to stockholders. Signup and view all the answers

What are stock dividends?

Additional shares issued to current stockholders in proportion to their ownership. Signup and view all the answers

What is a statement of retained earnings?

A financial statement showing changes in retained earnings during an accounting period. Signup and view all the answers

What is a statement of stockholders' equity?

A financial statement presenting information regarding changes in stockholders' equity. Signup and view all the answers

Study Notes

Stockholders' Equity Concepts

Corporation: A legal entity established under state or federal law, with ownership evidenced by shares of stock.
Articles of Incorporation: Founders' document outlining the corporation's purpose, structure, and capital stock specifics.
Par Value: The nominal value assigned to each share in the corporate charter, influencing the company's legal capital.
No-Par Value Stock: Shares that do not have a designated par value.
Stated Value: A nominal amount assigned to no-par value stock, treated similarly to par value for accounting.

Shares and Ownership

Authorized Shares: Maximum shares a corporation is permitted to issue for each stock class.
Issued Shares: Shares sold to stockholders, which can be outstanding or held in treasury.
Outstanding Shares: Shares actively held by stockholders.

Types of Stock

Common Stock: Basic stock class granting voting rights, dividends, and liquidation benefits after senior claims.
Preferred Stock: Prioritized stock type for dividends and asset distribution upon liquidation, holding rights over common stock.
Cumulative Preferred Stock: Type of preferred stock requiring payment of missed dividends before common stock dividends.
Convertible Preferred Stock: Preferred stock that can be exchanged for common stock at a predetermined rate.
Participating Preferred Stock: Type of preferred stock allowing for additional dividends beyond regular payments.
Callable Preferred Stock: Allows the issuing corporation to redeem preferred stock at a specified price.

Capital and Earnings

Paid-in Capital: Contributions from stockholders exceeding par or stated value of shares.
Retained Earnings: Profits not distributed as dividends, reinvested for corporate growth.

Stock Management

Forward Stock Split: Issuing additional shares to existing shareholders, increasing shares outstanding while reducing par value.
Treasury Stock: Shares repurchased by the corporation that are held, not canceled, reducing stockholders' equity on the balance sheet.

Distributions and Statements

Dividends: Allocations of cash or stock to stockholders from corporate earnings.
Stock Dividends: Issuing additional shares proportional to current ownership without cash distribution.
Statement of Retained Earnings: Financial statement detailing changes in retained earnings over an accounting period.
Statement of Stockholders' Equity: Financial statement summarizing changes in equity, including beginning balance, additions, deductions, and ending balance during a specific period.

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This quiz covers key concepts from Chapter 11 on Stockholders' Equity. It focuses on important terms such as 'corporation' and 'articles of incorporation', providing essential definitions to enhance your understanding in finance. Perfect for students looking to reinforce their knowledge in this area.