Acct I Final

Front 1

public corporations

Back 1

many stockholders with stock for sale in eschange markets

Front 2

private corporation

Back 2

few stockholders with no public stock sales

Front 3

corporations

Back 3

- separate legal entities
- limited liability of stockholders
- transferable ownership rights (sales and purchases of stock)
- ability to acquire capital
- continuous life
- corporation management (board of directors)
- govt. regulation (SEC, Sarbanes-Oxley)
- double taxation

Front 4

authorized stock

Back 4

max. amt. of stock that a corporation can sell

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outstanding stock

Back 5

capital stock issued and held by stockholders

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par value stock

Back 6

capital stock that is assigned a per-share value in the corporate charter -- no relationship to the market value

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no-par value stock

Back 7

no assigned a value in the charter

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stated capital

Back 8

value assigned by the board of directors

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paid-in-capital

Back 9

amt. stockholders paid to corporation in exchange for shares of ownership

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retained earnings

Back 10

earned capital held for future use in the business

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treasury stock

Back 11

corporation own stock that has been issued, paid for, and reacquired by the corporation to be held in its treasury (not retired)

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reasons for treasury stock

Back 12

to reissue to employees under various compensation plans

to incrase the trading of stock in the mkt. (may lead ppl. to believe that stock is underpriced)

to have additional shares available for use in acquiring other companies

to increase earnings per share by reducing the number of shares outstanding

Front 13

cost method of purchasing treasury stock

Back 13

companies debit treasury stock by the price paid to reaquire; treasury stock decreases by the same amt. when sold; the amt. must by disclosed on the balance sheet

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preferred stock

Back 14

contractual provisions that give it preferences over common stock in dividends and assets in case of liquidation

preferred stockholders have no voting rights

shown on b/s

Front 15

cumulative dividend feature

Back 15

sometimes in preferred stock contracts


preferred stockholders must be pad current year and unpaid prior year dividends before common stockholders receive their dividends

dividend arrears- preferred dividends not declared; not liabilities, but need to be disclosed

Front 16

liquidation preference

Back 16

creditors --> preferred --> common

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dividend

Back 17

distribution by corporation to stockholders on a pro rata basis

Front 18

declaration date

Back 18

board formally authorizes the cash dividend and announces it to stockholders --> leagally binding

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record date

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company determines ownership of the outstanding shares for dividend purposes

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payment date

Back 20

company mails dividend checks to stockholders
-reduces assets and liabilities

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cumulative effect of declaration and payment

Back 21

- decrease S/E and total assets

Front 22

stock dividends

Back 22

pro rata distribution of corporations own stock to stockholders
- decreases retained earnings and increases paid-in capital
- does not decrease s/e or total assets
- often issued due to inadequate cash for cash dividends

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reasons for issuing stock dividends

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- to satisfy dividends w/out spending cash
- increase marketability of the stock by increasing the number of shares outstanding, which decreases mkt. price
- emphasizes a portion of s/e has been permenantly reinvested in the busness

Front 24

small stock dividend

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less than 20-25%

recorded at fair mkt. value per share

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large stock dividend

Back 25

greater than 20-25%

recorded at par or stated value

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stock splits

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issuance of additional shares of stock to stockholders
reduces par or stated value per share
increases of number per shares
no effect on paid in capital, retained earnings, or total se
does not need to be journalized

Front 27

retained earnings

Back 27

net income that the company retains
part of stockholders' claim on total assets of hte corporation
net loss - when expenses exceed revenues

Front 28

payout ratio

Back 28

cash dividends declared on common stock / average common stockholder's equity

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bonds vs. common stock / debt. vs. equity

Back 29

owners control:
bonds - unaffected
c/s- diluted
tax benefit:
bonds - interest is tax deductable
c/s - dividends are taxed
financial ratio (EPS):
bond - unaffected
c/s: decreased
fixed payment:
bonds: yes
c/s: no

Front 30

statement of cashflows

Back 30

reports receipts, cash payments, and net change in cash resulting from operating, investing, and financing activities during a period

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information in SCF

Back 31

ability to generate future cashflows

ability to pay dividends and meet obligations

reasons for difference b/t net income and net cash used for operating activities

cash investing and financing transactions during the given period

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types of cashflow

Back 32

operating activities
investing activities
financing activities

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cash inflows for operating activities

Back 33

from sales of goods/services

from interest and dividends received

Front 34

cash outflows from operating activities

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to supplier for inventory
to employees for services
to govt. for taxes
to lenders for interest
to others for expenses

Front 35

cash inflows from investment activities

Back 35

from the sale of PPE
from the sale og investments in debt or equity securities from other companies
from the collection of loans to other entities

Front 36

cash outflows from investing activities

Back 36

to purchase PPE
to purchase debt or equity securities from other companies/entities
to make loans to other entities

Front 37

cash inflows from financing activities

Back 37

from the sale of common stock
from the issuance of debt (bonds, notes)

Front 38

cash outflows from financing activities

Back 38

to stockholders in the from of dividends
to redeem long-term debt or reacquire capital stock

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non-cash activities

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direct issuance of common stock in order to purchase assets
conversion of bonds into common stock
direct issuance of debt to purchase assets
exchanges in plant assets

--> non of these are on SCF

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indirect method for operating activities on SCF

Back 40

determine net cash provided/used by operating activies by converting NI from accrual to cash basis

- net income +/- adjustments = net cash used/provided in operating activities

add back non cash expenses (ex: depreciation, amortization, depletion)
deduct gains and losses from investing and financing
analyze changes in noncash current assets and liabilities

current assets -- deduct increases and add decreases
current liabilities -- add increases and deduct decreases

Front 41

indirect method for investing and financing activites on SCF

Back 41

analysze changes in noncurrent assets and liabilities and record as investing and financing activities or as noncash investing investing and financing

Front 42

net change in cash for indirect method

Back 42

compare the net change in cash on the statement of cash flows
with the change in account reported on the balance sheet to make sure the amts. agree

Front 43

free cash flow

Back 43

explains the cash remaining from operations after adjustment for capital expenditures and dividends

= cash provided by operations - cash expenditures - cash dividends

Front 44

liquidity

Back 44

ability of a business to meet its immediate obligations

Front 45

statement of cashflows

Back 45

reports receipts, cash payments, and net change in cash resulting from operating, investing, and financing activities during a period

Front 46

information in SCF

Back 46

ability to generate future cashflows

ability to pay dividends and meet obligations

reasons for difference b/t net income and net cash used for operating activities

cash investing and financing transactions during the given period

Front 47

types of cashflow

Back 47

operating activities
investing activities
financing activities

Front 48

cash inflows for operating activities

Back 48

from sales of goods/services

from interest and dividends received

Front 49

cash outflows from operating activities

Back 49

to supplier for inventory
to employees for services
to govt. for taxes
to lenders for interest
to others for expenses

Front 50

cash inflows from investment activities

Back 50

from the sale of PPE
from the sale og investments in debt or equity securities from other companies
from the collection of loans to other entities

Front 51

cash outflows from investing activities

Back 51

to purchase PPE
to purchase debt or equity securities from other companies/entities
to make loans to other entities

Front 52

cash inflows from financing activities

Back 52

from the sale of common stock
from the issuance of debt (bonds, notes)

Front 53

cash outflows from financing activities

Back 53

to stockholders in the from of dividends
to redeem long-term debt or reacquire capital stock

Front 54

non-cash activities

Back 54

direct issuance of common stock in order to purchase assets
conversion of bonds into common stock
direct issuance of debt to purchase assets
exchanges in plant assets

--> non of these are on SCF

Front 55

indirect method for operating activities on SCF

Back 55

determine net cash provided/used by operating activies by converting NI from accrual to cash basis

- net income +/- adjustments = net cash used/provided in operating activities

add back non cash expenses (ex: depreciation, amortization, depletion)
deduct gains and losses from investing and financing
analyze changes in noncash current assets and liabilities

current assets -- deduct increases and add decreases
current liabilities -- add increases and deduct decreases

Front 56

indirect method for investing and financing activites on SCF

Back 56

analysze changes in noncurrent assets and liabilities and record as investing and financing activities or as noncash investing investing and financing

Front 57

net change in cash for indirect method

Back 57

compare the net change in cash on the statement of cash flows
with the change in account reported on the balance sheet to make sure the amts. agree

Front 58

free cash flow

Back 58

explains the cash remaining from operations after adjustment for capital expenditures and dividends

= cash provided by operations - cash expenditures - cash dividends

Front 59

liquidity

Back 59

ability of a business to meet its immediate obligations

Front 60

CURRENT cash debt coverage ratio

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cash provided by operations/ average current liabilities

lower than .4 is poor

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solvency

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ability of company to survive over long-term

Front 62

cash debt coverage ratio

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cash provided by operations / average total liabilties

-- indicates ability to repay liabilities from cash generated from operations

-- below .2 is poor

Front 63

direct method for operating activities on SCF

Back 63

determines net cash provided/used by operating activities by converting net income from accrual basis to cash basis

--direct method - compute cash by adjusting each item in the income statement

cash receipts - cash payments = net cash

Front 64

direct method for investing activities on SCF

Back 64

analyze changes in noncurrent asset and liability accounts and record as investing activities or as significant noncash transactions

both individual outflows and inflows should be shown

do not report net income on SCF under the direct method

Front 65

direct method net change in cash on SCF

Back 65

compare the net change in cash on the SCF with the change in cash account reported on the balance sheet to make sure the amounts agree

Front 66

reasons that corporations invest

Back 66

excess cash due to seasonal or economic cycles -- low risk, high liquidity, short-term

investment income is necessary in business
banks - debt investment
mutual funds - stock investment

strategy -- obtaining stock of target company

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debt investments

Back 67

investments in govt. and corp. bonds

Front 68

acquisition of debt investments -- cost principle

Back 68

cost = price paid + brokerage fees / commissions (if any)

Front 69

stock investments

Back 69

investments in capital stock of corporations
- when company has stock in several corporations its called a portfolio
- accounting depends on influence level

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cost method

Back 70

investment is recorded at cost, and revenue is recorded when cash dividends are received

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equity

Back 71

investment is initially recorded at cost, but the investment account is adjusted annually

Front 72

valuation and reporting of investments

Back 72

debt and stock investments representing a holding of less than 20% are reported at fair value (the amt. at which the investment could be sold in a normal mkt.)

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types of securities

Back 73

trading securities: short term; brought and held mainly for sale in the near to generate income on short-term price differences

available for sale securities: short-term /long term; securities that may be sold in the future

held-to-maturity securities: long term; debt securities that the investor has intent an ability to hold to maturity

Front 74

sustainable income

Back 74

net income adjusted for irregular items
- it is expected to be repeated the future
- it makes evaluation and prediction more meaningful

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irregular items

Back 75

discontinued operations
extraordinary items
changes in accounting principle

Front 76

discontinued operations

Back 76

the disposal of a significant segment of the business
- gain/loss from discontinued operations

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extraordinary items

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event and transactions that meet two conditions:
- unusual in nature: abnormal
- infrequent in occurrence: not expected to occur again in the foreseeable future

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comprehensive income

Back 78

changes in stockholders' equity except those resulting from investments by stockholders and distributions to stockholders - dividends

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horizontal analysis

Back 79

evaluating changes over a period of time

- change since base period
- current results in relation to base period

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vertical analysis

Back 80

evaluating an individual item as a percentage of a base amt.

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ratio analysis

Back 81

liquidity - ability to pay short-term/current liability

solvency- ability to pay long-term liability

profitability- ability to generate profit