ACC 232 1st Edition Final Exam Study Guide Chapters 15 17 Chapter 15 Sole ProprietorshipsPartnershipsCorporationsCorporate 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 corporation Capital 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 value Common stockholders Voting rights Preemptive rights be able to describe what this means Limited liability to the extent of their investment in the stock Journal Entries for Issuing Common Stock Issued for 35 18 000 shares With Par Value of 15 per share Cash 35 18 000 shares 630 000 Common Stock 15 18 000 shares 270 000 Paid in Capital in Excess of Par Common Stock 360 000 No 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 Stock has stated value of 20 per share Cash 35 18 000 shares Common Stock 20 stated value 18 000 shares Paid in capital in excess of Stated Value common stock 630 000 630 000 360 000 270 000 Preferred 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 rate o Convertible converted in to common stock at a specific rate o Callable can be called for liquidation by the board of directors o Participative dividend can be increased by the common stockholders getting dividends at a higher percentage of par value than the preferred stockholders Journal Entries for Issuing Preferred Stock 35 Par Value 18 000 shares With Par Value of 15 per share Cash 35 18 000 shares 630 000 Preferred Stock 15 18 000 shares Paid in Capital in Excess of Par Preferred Stock 270 000 360 000 Issue Preferred and Common Stock together 1 500 shares of stock 75 per share 75 000 of bonds for 200 000 Proportional Method FMV 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 40 Cash 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 7 500 stock 12 500 60 200 000 187 500 12 500 Incremental Method know one of the securities but not the other FMV of stock 80 000 bonds Cash 200 000 Common Stock 80 000 Bonds Payable 120 000 Identify the key components of stockholders equity Stockholders Equity Contributed paid in capital o Capital stock o Additional paid in capital Retained Earnings Noncash 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 determinable Stock 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 stockholders o Deceased stockholders redemption agreements Increased earnings per share without increasing earnings Establish a floor on the stock price 2 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 cost Retiring Treasury Stock 1 000 share bought at 26 per share Par Value 24 Common Stock Par Value 24 000 Treasury Stock 26 000 PIC in excess of par or Ret Earnings 2 000 Dividends Dividend Policies Smooth dividend policy each year increase dividend slightly pay continuous dividend Types of Dividends 1 Cash Dividends Declaration Date declared dividends are a liability o Board of directors declares the dividend o 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 date o Dividends Payable 100 000 Cash 100 000 2 Stock Dividends corporation issues of the number of shares outstanding instead of cash Small stock dividend FMV less than 20 of stock o Recorded at FMV o 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 1 200 000 Stock dividend distrib 100 000 5 par 500 000 PIC excess of par 700 000 Payment Date Stock Dividend distributable 500 000 Common stock 500 000 Large stock dividend FMV more than 25 of stock o Recorded at Par o Example 1 000 000 shares 30 stock dividend 5 par value Retained earnings 300 000 shares 5 1 500 000 Stock dividend distributable 1 500 000 Payment Date Stock Dividend Distributable 1 500 000 Common stock 1 500 000 3 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 300 000 Gain on silver coin inv 300 000 Dividends 500 000 Property Dividends Distributable 500 000 Property Dividends Distributable 500 000 Silver coin inventory 500 000 4 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 earnings Stock splits New shares are issued to current shareholders Decreases the market price of the stock 2 1 stock split start with 1 end up with 2 No entry on the books o of shares issued doubles o Par value will be