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45 Cards in this Set

  • Front
  • Back
three primary forms of business organization
proprietorship, partnership and the corporation
the principal advantage of corporate form of business is
facility for attracting and accumulating large amounts of captital
the special charachteristics of the corporate form that affect accouning include
influence of the state corporate law
use of the capital stock or share system
development of a variety of ownership interests
each share of a corporation carries the following rights
to share proportionately in profits and losses
to share proportionately in management
to share proportionately in corporate assets upon liquidation
to share porportionately in any new issues of stock of the same class, called the preemptive right
the premptive right
protects an existing stockholder from involuntary dilution of ownership interest.
the _____ and the ____ govern the negotiablilty of stock certificates
uniform stock transfer act
uniform commercial code
the stock that represents the basic ownership interest is
common stock
the residual corporate interest that bears the ultimate risks of loss and recieves the benefits of success
common stock
three categories that normally appear as part of stockholders equity
capital stock
additional paid in capital
retained earnings
the earned capital of the company
retained earnings
the total amount paid in on captial stock- the amount paid in by stockholders for use in the business
contributed capital
the capital that develops from profitable operations
EARNED CAPITAL undistributed income that remains invested in the company
the difference between the assets and the liabilities of the company
owners or stockholders equity
cumulative net contributions by stockholders plus retained earnings
stocknolders equity
the procedure to issue stock is first
the state must authorized the stock, generally in a certificate of incorporation
after the certificate of incorporation, then the company must
offer shares for sale, entering into contracts to sell stock
After receiving money for a stock issue the company then
issues shares
these two stock accounts reflect the par value of the corporation's issued shares
preferred stock or common stock
a company ____ the preferred stock or common stock accounts when it _____
credits, issues shares, and does not make any additions to this account until it issues additional shares or retires stock
this account indicates any excess over par value paid in by stockholders in return for the shares issued to them
additional paid in capital
when a corporation issues two or more classes of securities for a single payment
lump sum securities
Companies use one of two methods to allocate for lump sum sales
proportional method
incremental method
if fair market value is available for each class of security offered in a lump sum sale the company uses the___ to allocate value to the classes of stock
proportional method
when fair market value is not available for each class of security offered in a lump sum sale the company uses the___ to allocate value to the classes of stock
incremental method
Companies should avoid the use of ____, _____ or ____ as a basis of valuation for noncash stock transactions
book, par, or stated values
secret reserves may be caused by
undervalued assets in issuance of stock
excessive depreciation or amortization charges
expensing capital expenditures
excessive write-downs of inventories or receivables
any other understatement of assets or overstatment of liabilities
direct costs incurred to sell stock should be reported as____ and ___ the ____ account
a reduction of amounts paid in; debits; additional paid in capital
companies should ___ indirect costs of stock issuance
Companies who record a recievable when issuing stock, should report the receivable in the
contra-equity account
Corporations purchase their outstanding stock for several reasons
to provide tax efficient distributions of excess cash to shareholders

to increase the earnings per share and ROE

To provide stock for employee stock compensation contractsw or to meet potential merger needs

to thwart takeover attempts or to reduce the number of stockholders

to make a market in the stock
when a company borrows money to finance the stock repurchases
leveraged buyout
shares repurchased that are not retired are
treasury stock
When a company purchases trasury stock a reduction occurs in both ___ and ____
THe two methods used to deal with the treasury stock account are the
cost method; par or stated value method
The cost method of dealing with treasury stock account is
when Tresury stock is debitied for the reaqusition cost and that account is a adeduction from the total paid in captial and retained earnings on the balance sheet
the ___ or ____ method records all transactions in treasury shares at their par value, and reports treasury stock as a deduction from _____ only
par or stated value; capital
the number of shares of issued stock that stockholders own is called
outstanding stock
The sale of treasury stock either abobe or below cost ____.
increases both total assets and stockholders equity
When the selling price of shares of treasury stock exceeds its cost a company credits the difference to
paid in captial from treasury stock
wHy cant a company credit to gain on sale of treasury stock when the selling price of shares exceeds its cost
gains on sales occur when selling ASSETS, treasury stock is not an asset, a gain or loss should not be recognized from stock transactions with its own stockholders
When a corporation sells treasury stock below its cost it usually
debits the excess of the cost over selling price to PIC from treasury stock.
When recording a sale of treasury stock a company
credits the sale of treasury stock
uses the paid in capital from trasury stock for the difference between cost and resale price of the shares
after eliminating the credit balance in paid in capital from treasury stock, the corporation ___ any additional excess of cost over selling price to ____
debits; retained earnings
retired treasury shares are accounted for the same as
authorized and unissued shares
when shares of treasury stock are retired corporations ___the ___ account
debits; paid in capital accounts applicable to the retired shares