Accounting 2 Chp 6 PDF

A=L+C 500,000= 200,000 +300,000 PRODUCTION SALES = REVENUE-PROFIT LOSSES = LIMITED LIABILITY A=L parent corporation (or parent company) is a company that owns enough shares or has control over another company or multiple companies. The companies that the parent corporation controls...

A=L+C 500,000= 200,000 +300,000 PRODUCTION SALES = REVENUE-PROFIT LOSSES = LIMITED LIABILITY A=L parent corporation (or parent company) is a company that owns enough shares or has control over another company or multiple companies. The companies that the parent corporation controls are known as **subsidiaries**. Imagine the parent corporation as a "big boss" that oversees and makes important decisions for the smaller "companies" (subsidiaries) under its control. The parent corporation can guide how these subsidiaries operate, but each subsidiary usually still runs its day-to-day business independently. holding corporation (or holding company) is a type of parent corporation that doesn't produce goods or services itself. Instead, it exists solely to own shares of other companies. The holding company’s main job is to own and manage the investments in its subsidiaries, like a person who owns and manages a collection of different businesses. So, both a parent corporation and a holding corporation own or control other companies, but the key difference is that a holding company typically doesn't engage in its own business activities—it just owns other businesses. A subsidiary corporation is a company that is owned or controlled by another company, known as the parent corporation or holding company. Think of a subsidiary as a "child" company. The parent company owns more than 50% of the subsidiary's shares, which gives it control over the subsidiary's operations and decisions. However, the subsidiary is still a separate legal entity, meaning it has its own assets, liabilities, and operations. For example, imagine a large company (the parent company) that owns a smaller company (the subsidiary). The large company might let the smaller one operate under its own brand name and make its own day-to-day business decisions, but the large company has the final say in major decisions because it owns most of the smaller company's stock. An affiliated corporation refers to a company that is related to another company through ownership, but the relationship isn't as strong as the one between a parent company and its subsidiary. In an affiliation, one company might own a smaller portion of the other company’s stock, usually less than 50%. Because of this, the companies are connected and might collaborate or share resources, but neither company has full control over the other. They operate more independently compared to a parent and subsidiary relationship. For example, if Company A owns 30% of Company B's shares, Company B is considered an affiliated company of Company A. They are linked by this ownership stake, but Company A doesn't have enough control to make major decisions for Company B. A **wasting asset corporation** is a type of company whose primary assets are expected to decrease in value over time, usually because they are finite or are being gradually depleted. The term "wasting asset" refers to resources or assets that will eventually run out or lose their value, such as natural resources (like oil, gas, or minerals) or other exhaustible assets. Companies in industries like mining, oil drilling, or timber often fall into this category because they extract and sell these limited resources. For example, if a corporation owns an oil field, the oil in that field is a wasting asset because once the oil is extracted and sold, it’s gone, and the value of the field decreases as the oil supply dwindles. The corporation’s value is tied to how much of that resource it has left and how efficiently it can extract and sell it before the resource is exhausted. A corporation by prescription is an entity that is treated as a corporation due to its long-standing practice and operation, even though it lacks formal legal incorporation. It historically applied to entities that had functioned as corporations for so long that the law recognized them as such, despite the absence of a formal charter or registration. This concept is mostly of historical interest today, with modern corporations needing formal legal processes for incorporation. Corporation by estoppel is a legal concept where an entity is treated as a corporation because it has acted as one and others have relied on it as such, even if it wasn’t formally incorporated. It prevents parties from denying the corporation's status after relying on it in business dealings. A quasi-public corporation is a private entity that provides public services (like utilities or transportation) and is regulated by the government, but is not fully owned or controlled by it. A quasi-corporation is a government or political entity with some corporate features, like managing assets or entering contracts, but it isn’t a full corporation. It has legal powers similar to a corporation but doesn’t have all the characteristics of a traditional corporation. CORPORATORS= STOCKHOLDERS OR shareholders SHAREHOLDERS= PROFIT ORIENTED, Board Of Directors MEMBERS = NON PROFIT ORIENTED, Board Of Trustees A subscriber is someone who agrees to purchase shares of a corporation under a subscription agreement. This agreement happens when the shares are originally issued. When a subscriber commits to buying shares, they may not pay the full amount immediately. They are responsible for paying for the shares according to the terms agreed upon with the corporation. So, a subscriber is essentially a person who promises to buy shares at the time the corporation is formed or issues new shares, but may not have paid for them in full right away. SUBSCRIPTION RECEIVABLE - is a current asset recorded in the balance sheet and must be converted into cash in a short period of time, if not settled on prescribed date, the subscription is on default meaning the corporation may take action, such as canceling the shares or pursuing payment. authorised shares of stocks by the SEC assuming authorised to issue 100,000 shares of stocks at P5 par value 100,000 x P5 = P500,000 sold 40,000 shares at par = 40,000 x P5 = P200,000 outstanding shares issued additional 10,000 shares at par value common stock = ordinary shares, concerned with the management of the corporation preferred stock - preference shares, is more concerned with the dividends they will receive Par Value Stock Par Value - This is the minimum price set by the company for each share of its stock. It’s a nominal value, often very low, like $1 or even just a few cents. Par value is mostly an accounting term and doesn’t usually reflect the actual market price of the stock. It’s the lowest amount that a company can sell its shares for when they are first issued. No Par Value Stock No Par Value - These stocks don’t have a minimum price assigned to them. Instead, the company can sell them for whatever price the market will bear. Without a par value, the company has more flexibility in setting the initial sale price of the shares. Simple Summary: Par Value Stock - Has a minimum set price per share. No Par Value Stock - No minimum price, giving the company more flexibility. Preferred stock is a type of stock that gives you special benefits, like getting paid dividends first and having a higher claim on the company’s assets if it goes out of business. However, you usually don’t get to vote on company decisions. It's more stable than regular stock but doesn't offer as much potential for big gains. Preferred stock must have a par value by law, which is the minimum value at which the stock can be sold. If a corporation issues preferred stocks without a par value, they must assign a "stated value" to these stocks as required by law. Additionally, the law mandates that no-par value shares cannot be issued for less than PHP 5.00, ensuring a minimum value to protect the company's financial stability and investors' interests. Formative stock is the minimum number of shares that must be bought when starting a company. This rule is set by the company's founding documents, not by law. It's like a starting requirement to show that the company has some financial backing. Over-issued or spurious stock refers to shares that are issued beyond the amount the company is legally allowed to issue. These extra shares are considered invalid or void because they exceed the company's authorized capital stock limit. Treasury stock is when a company sells shares to investors and then later buys those shares back. The company holds onto these shares, but they don’t count for voting or earning dividends until the company decides to sell them again or cancel them. A company buys back its own shares to boost the stock price, increase earnings per share, use excess cash effectively, prevent takeovers, or return value to shareholders. By reducing the number of shares available, the company can make the stock more valuable and improve financial metrics, benefiting current shareholders. Promotion stock is shares given to people who help start a company. In general, it's given to founders or early contributors as a reward. In mining companies, it's given to those who own valuable land or rights and transfer them to the company when it begins. Shares in escrow are held by a third party until specific conditions are met. Once the conditions are fulfilled, the shares are released to the intended party. This arrangement helps ensure that all agreed-upon terms are satisfied before the shares change hands. Callable or redeemable preferred stock can be bought back by the issuing company at a set price, which is usually higher than the stock's original price or par value. This allows the company to repurchase the shares before they are due. Convertible preferred stock can be turned into common stock at the holder's choice, often at a set rate. This lets investors benefit if the company's common stock value goes up. Here’s a simple breakdown of the advantages your professor mentioned: 1. Ease of Sale Par value shares are easier to sell because the minimum price is clearly set and known. 2. Protection for Creditors Creditors are better protected because shares can’t be sold for less than their par value, ensuring that the company maintains a minimum amount of capital. 3.Investor Security Investors are assured that they will not buy shares below par value, and dividends are calculated fairly based on this value. TO BE CONTINUED 1.Liability for Unpaid Subscriptions Subscribers may owe money if they don’t fully pay for their shares. If they default, they might not get back any money they've already paid. 2. Misrepresentation of Stock Value The par value might not accurately reflect the true value of the shares, leading to potential misunderstandings or misleading perceptions about the stock's worth.