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ISU ACC 232 - Exam 1 Study Guide
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ACC 232 1st EditionExam # 1 Study Guide Chapters 15 & 17Chapter 15Sole Proprietorships-Partnerships-Corporations-Corporate form of organization characteristics:- File articles of incorporation in the state in which incorporation is desired- State will issue a corporate charter=recognizes company as a legal entity subject to state law- Company can operate in many states but only is incorporated in one state- Unlimited life- Limited liability- Charter-document with state that states what type business they are in - by-laws-important details of corporationCapital stock system- At least one class of common stock- Preferred stock- Each share represents ownership and carries rights to share proportionately in:- Profits and Losses- Management- Corporate assets if liquidated- Any new issues of stock of the same class (preemptive right)Common stock:- Residual equity-common stock gets what is left over after creditors and preferred stockholders have been paid- Par Value-an amount that has been stated as the Par Value of the common stock; stock cannot be issued for less than par value (if it is then the stockholder is liable for the difference)o If no Par Value: could have stated value (stated by board of directors)o Could also have no stated valueCommon stockholders:- Voting rights- Preemptive rights (be able to describe what this means)- Limited liability to the extent of their investment in the stockJournal Entries for Issuing Common Stock: Issued for $35, 18,000 sharesWith Par Value of $15 per shareCash ($35*18,000 shares) 630,000 Common Stock ($15*18,000 shares) 270,000Paid in Capital in Excess of Par-Common Stock 360,000No Par Value (state value is the $35 it is issued for, so use that)Cash ($35*18,000 shares) 630,000 Common stock ($35*18,000 shares) 630,000Stock has stated value of $20 per shareCash ($35*18,000 shares) 630,000 Common Stock ($20 stated value*18,000 shares) 360,000 Paid in capital in excess of Stated Value-common stock270,000Preferred Stock:- Get dividends and assets (in liquidations) before common stockholders- Can be any of the following:o Cumulative-any dividends not paid in prior years have to be paid before dividends can be paid to common stockholders, have a par value and a dividend %, or a stated dividend rateo Convertible-converted in to common stock at a specific rateo Callable –can be called for liquidation by the board of directorso Participative-dividend can be increased by the common stockholders getting dividends at a higher percentage of par value than the preferred stockholdersJournal Entries for Issuing Preferred Stock: $35 Par Value, 18,000 sharesWith Par Value of $15 per shareCash ($35*18,000 shares) 630,000 Preferred Stock ($15*18,000 shares) 270,000 Paid in Capital in Excess of Par-Preferred Stock 360,000Issue Preferred and Common Stock together: 1,500 shares of stock ($75 per share), $75,000 of bonds for $200,000- Proportional MethodFMV of stock ($75*1,500 shares=112,500), FMV of bonds ($75,000), $112,500+$75,000=$187,500 $75,000/187,500=.40 $200,000 allocated 60/40Cash 200,000 Bonds Payable (FMV) 75,000 Premium on bonds payable (*12,500*40%) 5,000 Common stock (FMV) 112,500 Paid in capital in excess of par-common stock (*12,500*60%)7,500*200,000-187,500=12,500- Incremental Method-know one of the securities but not the otherFMV of stock =$80,000, bonds=??Cash $200,000 Common Stock $80,000 Bonds Payable 120,000Identify the key components of stockholders equityStockholders’ Equity- Contributed (paid-in) capitalo Capital stocko Additional paid in capital- Retained EarningsNoncash stock transactions- Trade a good or service for shares of stock- Property/services recorded at FMV or FMV of stock issued, whichever is more clearly determinableStock Issue Costs or underwriter fees-subtracted from the stock proceeds (debit Paid in capital in excess of par)Treasury stock (reacquisition of company’s stock)- Common stock can be currency for certain transactions- To get rid of certain stockholderso Deceased stockholders redemption agreements- Increased earnings per share without increasing earnings- Establish a floor on the stock price2 ways of recording Treasury Stock- Par Value Method-record the treasury at par, eliminate Paid in Capital in excess of par at the time of purchase. Put in paid in capital in excess of par when the share are reissued.- Cost method (most popular)-record treasury stock at costRetiring Treasury Stock (1,000 share, bought at $26 per share, Par Value $24Common Stock (Par Value) 24,000 Treasury Stock 26,000PIC in excess of par (or Ret. Earnings) 2,000DividendsDividend PoliciesSmooth dividend policy-each year increase dividend slightly, pay continuous dividendTypes of Dividends1.Cash Dividends- Declaration Date-declared dividends are a liabilityo Board of directors declares the dividendo Dividends 100,000 (reduction in retained earnings) Dividends Payable 100,000 ( a current liability- Date of Record-owner of the stock on this date receives the dividend (stock exchanges set ex-dividend dates, usually 3 days before the date of record)o No journal entry- Payment dateo Dividends Payable 100,000Cash 100,0002.Stock Dividends-corporation issues % of the number of shares outstanding (instead of cash)- Small stock dividend @FMV=less than 20% of stocko Recorded at FMVo Example: 1,000,000 share of $5 par, $12 FMV stock, 10% dividend declared (1,000,000*10%=100,000 shares*$12=$1,200,000)o Retained earnings (or Dividends) 1,200,000Stock dividend distrib.(100,000* $5 par) 500,000PIC excess of par 700,000Payment DateStock Dividend distributable 500,000Common stock 500,000- Large stock dividend @FMV=more than 25% of stocko Recorded at Paro Example: 1,000,000 shares, 30% stock dividend, $5 par valueRetained earnings (300,000 shares*$5) 1,500,000Stock dividend distributable 1,500,000Payment DateStock Dividend Distributable 1,500,000Common stock 1,500,0003.Property Dividends-company gives a tangible asset to the stockholders instead of cash- Property book value of $200,000, FMV of $500,000- Silver coin inventory $300,000Gain on silver coin inv. 300,000Dividends 500,000Property Dividends Distributable 500,000Property Dividends Distributable 500,000Silver coin inventory 500,0004.Script Dividend-promissory note given in place of cash- Has interest rate and due date- Can be sold to 3rd party (usually at a discount)5.Liquidating Dividends-pay dividends that greatly exceed retained earningsStock


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ISU ACC 232 - Exam 1 Study Guide

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