Bài giảng Fundamental Financial Accounting Concepts - Chapter 11: Proprietorships, Partnerships, and Corporations

Proprietorships, Partnerships, and CorporationsChapter ElevenMcGraw-Hill/IrwinMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Business Forms A sole proprietorship is owned by a single individual.A partnership is owned by two or more individuals.Partnerships require clear agreements about authority, risks, and the sharing of profits and losses.A corporation is a separate legal entitycreated by the authority of a state government.Each state has separate laws governing establishing corporations.11-*RegulationFew laws govern the operationsof sole proprietorships and partnerships.Corporations are subject to regulations.Large, publicly traded corporationsare much more heavily regulated thansmaller, closely-held corporations. SEC Acts of 1933 and 1934. Sarbanes-Oxley Act of 2002. Exchange listing requirements. 11-*Corporate AdvantagesSeparate legal entityLimited liability of stockholdersContinuous lifeEasily transferable ownership rights Ability to raise capitalCorporate DisadvantagesGovernmental regulationCorporate double taxationComparing Forms of Ownership11-*Elected byshareholdersAppointedby directorsCorporate Management Structure11-*Capital Structure in Financial StatementsThe ownership interest (equity)in a business is composed of: Owner/investor contributions. Retained earnings. 11-*Legal capital is the amount of capital, required by the state of incorporation, that must remain invested in the business.Par Value Nominal AmountLegal CapitalCharacteristics of Capital Stock11-*Some states do notrequire a par value to be stated in the charter.No-par StockCharacteristics of Capital Stock11-*Par value is an arbitrary amount assigned to each share of stock when it is authorized.Market price is the amount that each share of stock will sell for in the market.Characteristics of Capital Stock11-*Authorized, Issued, and Outstanding Capital StockThe maximum number of shares of capital stock that can be sold to the public. AuthorizedShares11-*Authorized, Issued, and Outstanding Capital StockUnissuedStockTreasuryStockOutstandingStockIssuedStockTreasury stock is issued stock that has been reacquired by the corporation.Outstanding stock is issued stock that is owned by stockholders.AuthorizedStock11-*Common stockholders have the rights to: Buy and sell stock. Share in the distribution of profits. Share in the distribution of assets in the case of liquidation. Vote on significant matters that affect the corporate charter. Participate in the election of directors.Classes of Stock – Common Stock11-*A separate class of stock, typically having priority over common shares in . . .Dividend distributions.Distribution of assets in case of liquidation.Classes of Stock – Preferred StockUsually has a stated dividend rate.Normally has no voting rights.11-*NoncumulativeCumulativeDividends in arrears must be paid before dividends may be paid on common stock.Undeclared dividends from current and prior years do not have to be paid in future years.Most preferred stock is cumulative.Preferred Stock Dividends11-*No voting or dividend rightsContra equity accountWhen stock is reacquired, the corporation records the treasury stock at cost.Treasury shares are issued shares that have been reacquired by the corporation.Treasury Stock11-*Why woulda companybuy itsown stock?Treasury StockCommon reasons include: Employee stock option plans. Preparation for a merger. To increase earnings per share. Supporting the stock price. To avoid a hostile takeover.11-*Three important datesCash DividendsDate of RecordNo entryrequired.Payment DateRecord payment ofcash to stockholders.Declaration DateRecord liabilityfor dividend.Dividends11-*Stock DividendsDistribution of additional sharesof stock to stockholders.No change in total stockholders’ equity.No change inpar values.All stockholders retain same percentage ownership.11-*Stock SplitsStock splits replace existing shares with a greater number of new shares.Companies use stock splits to reduce market price per share of their outstanding stock.The number of outstanding shares increase and par value is decreased proportionately.Retained earnings is not affected.11-*A corporation’s directors can voluntarily limit dividends because of a special need for cash.Assume that Nelson’s board of directors appropriated $1,000 of retained earnings for future expansion. Let’s record the entry.Appropriation of Retained Earnings11-*Financial Statement Presentation11-*The Financial AnalystDividendsIncrease in marketprice per shareStockholders benefit in two wayswhen a company generates earnings.11-*End of Chapter Eleven11-*