Chapter F11 Power notes Corporations: Organization, Capital Stock, Dividends Learning Objectives 1. Nature of a Corporation 2. Stockholders'Equity 3. Sources of Paid-in Capital 4. Issuing Stock 5. Treasury Stock Transactions 6. Stock Splits c11 7. Accounting for Dividends 8. Financial Analysis and Interpretation c11-1
C11 - 1 Learning Objectives Power Notes 1. Nature of a Corporation 2. Stockholders’ Equity 3. Sources of Paid-in Capital 4. Issuing Stock 5. Treasury Stock Transactions 6. Stock Splits 7. Accounting for Dividends 8. Financial Analysis and Interpretation Chapter F11 C11 Corporations: Organization, Capital Stock, Dividends
Chapter F11 Power notes Corporations: Organization, Capital Stock, Dividends Slide i Power Note Topics 3. Characteristics of Corporations 10. Stockholders'Equity 19· Issuing Stock 22. Treasury Stock Transactions 28. Stock Splits and Dividends 35 . Dividend Yield on Common Stock I Note: To select a topic, type the slide# and press Enter c11-2
C11 - 2 • Characteristics of Corporations • Stockholders’ Equity • Issuing Stock • Treasury Stock Transactions • Stock Splits and Dividends •Dividend Yield on Common Stock Slide # Power Note Topics 3 10 19 22 28 35 Note: To select a topic, type the slide # and press Enter. Chapter F11 Power Notes Corporations: Organization, Capital Stock, Dividends
Characteristics of Corporations As a separate legal entity, a corporation may own and dispose of property in its own name. The corporation ownership is divided into units called shares of stock The owners of the shares are called shareholders or stockholders Stockholders of a corporation have a limited liability. c11-3
C11 - 3 Characteristics of Corporations As a separate legal entity, a corporation may own and dispose of property in its own name. The corporation ownership is divided into units called shares of stock. The owners of the shares are called shareholders or stockholders. Stockholders of a corporation have a limited liability
Characteristics of Corporations Stockholders (owners of corporation stock) Classes of stock Common Stock- the basic ownership of stock with rights to vote in election of directors, share in distribution of earnings, and purchase additional shares Preferred Stock-A class of stock with preferential rights over common stock in payment of dividends and company liquidation c11-4
C11 - 4 Characteristics of Corporations Stockholders (owners of corporation stock) Common Stock – the basic ownership of stock with rights to vote in election of directors, share in distribution of earnings, and purchase additional shares. Preferred Stock – A class of stock with preferential rights over common stock in payment of dividends and company liquidation. Classes of Stock
Characteristics of Corporations Stockholders (owners of corporation stock) Board of directors (elected by stockholders) c11-5
C11 - 5 Characteristics of Corporations Board of Directors (elected by stockholders) Stockholders (owners of corporation stock)
Characteristics of Corporations Stockholders (owners of corporation stock) Board of directors (elected by stockholders) 0 Officers (selected by board of directors) c11-6
C11 - 6 Characteristics of Corporations Officers (selected by board of directors) Board of Directors (elected by stockholders) Stockholders (owners of corporation stock)
Characteristics of Corporations Stockholders (owners of corporation stock) Board of directors (elected by stockholders) 0 Officers (selected by board of directors) Employees (hired by officers c11-7
C11 - 7 Characteristics of Corporations Employees (hired by officers) Officers (selected by board of directors) Board of Directors (elected by stockholders) Stockholders (owners of corporation stock)
Forming a corporation First step is to file an application of incorporation with the state Because state laws differ, corporations often organize in states with more favorable laws ore than half of the largest companies are incorporated in Delaware. State grants a charter or articles of incorporation which formally create the corporation Management and board of directors prepare by laws which are operation rules and procedures c11-8
C11 - 8 Forming a Corporation First step is to file an application of incorporation with the state. Because state laws differ, corporations often organize in states with more favorable laws. More than half of the largest companies are incorporated in Delaware. State grants a charter or articles of incorporation which formally create the corporation. Management and board of directors prepare bylaws which are operation rules and procedures
Forming a Corporation Cost of organizing includes legal fees, taxes and licenses, promotion costs, etc. These costs are recorded as an intangible asset. Date Description Debit Credit Jan 5 Organization Costs 8,500 Cash 8.500 Paid organization costs of $8, 500. Dec31 Amortization Expense 700 Organ ization Costs 1700 Amortization of organization costs over 5 years. $83500 costs/5 years=$1,700 c11-9
C11 - 9 Date Description Debit Credit Forming a Corporation Organization Costs 8,500 Cash 8,500 Amortization Expense 1,700 Organization Costs 1,700 $8,500 costs / 5 years = $1,700 Jan. 5 Paid organization costs of $8,500. Amortization of organization costs over 5 years. Dec. 31 Cost of organizing includes legal fees, taxes and licenses, promotion costs, etc. These costs are recorded as an intangible asset
Stockholders' Equity Liabilities Assets Stockholders Equity Stockholders'Equity Assets-Liabilities Represents the stockholders share of the total assets c11-10
C11 - 10 Stockholders’ Equity Assets Liabilities Stockholders’ Equity Stockholders’ Equity = Assets – Liabilities Represents the stockholders’ share of the total assets