会计英语Chapter8Owners’Equity—theCorporation.ppt

1、1,Chapter 8 Owners Equitythe Corporation,Learning Objectives 1.Know advantages and disadvantages of the corporation form of organization. 2.Know formation of a corporation. 3.Know authorization and issuance of capital stock. 4.Describe the difference types of dividends. 5.Account for retained earnin

2、gs. 6.Account for corporate income taxes.,2,8.1 Advantages and Disadvantages of the Corporation Form of Organization 8.1.1 Advantages of the Corporation Form of Organization,The corporation offers a number of advantages not available in the other forms of organization. Among these advantages are the

3、 following.,3,1)Separate Legal Entity A corporation is a legal entity created on the approval of the appropriate governmental authority. It may acquire assets in its own name, and it can incur debts, conduct business, enter into contracts, pay income taxes on its earnings and sue.,4,2)No Personal Li

4、ability for Stockholders The liability of shareholders with respect to company affairs is usually limited to their equity in the corporation. Because of this limited liability, the government places rigid controls on the distribution of contributed capital. Distributions of retained earrings (undist

5、ributed profits) are not legal unless the board of directors formally declares a dividend. ,5,3)Ease of Transferring Ownership Rights Shares in a corporation may be routinely transferred without affecting the operations of the company. Although corporations must have stockholders records in order to

6、 notify shareholders of meetings and to pay dividends, no accounting recognition is given to the individual or aggregate price for which transfers are made.,6,4)Continuity of Existence Because routine transfers of ownership do not affect a corporations affairs, the corporation is said to have contin

7、uity of existence .In this respect, a corporation is completely different from a partnership. ,7,5)Professional Management The stockholders own the corporation, but they do not manage it on a daily basis. To administer the affairs of the corporation, the stockholders elect a board of directors. The

8、directors, in turn, hire a president and other corporate officers to manage the business.,8,6) Capital Raising Capability The limited liability of stockholders and the ease with which shares of stock may be transferred from one investor to another are attractive features to potential stockholders. T

9、hey enhance the ability of the corporation to raise large amounts of capital by issuing shares of stock.,9,8.1.2 Disadvantages of the Corporate form of Organization,Among the disadvantages of the corporation are: 1)Double Taxation 2)Greater Regulation and Supervision 3)Separation of Ownership and Co

10、ntrol,10,8.2 Formation of a Corporation,The corporation must obtain a corporate charter from the state in which the corporation is formed, and it must receive authorization from that state to issue shares of capital stock.,11,8.2.1 Rights of Stockholders,A corporation is owned by its stockholders. S

11、ome companies issue more than one class of stock, such as common stock and preferred stock. The interest of stockholder is determined by the number of shares that he or she owns.,12,8.2.2 Stockholders Equity,The sections of the balance sheet showing assets and liabilities are much the same for all t

12、hree forms of business organization. The owners equity section is the principal point of contrast. In the balance sheet of a corporation, the term stockholders equity is used instead of owners equity.,13,8.3 Authorization and Issuance of Capital Stock,The articles of incorporation specify the number

13、 of shares of capital stock which a corporation is authorized to issue and the par value. The corporation may choose not to issue immediately all the authorized shares; in fact, it is customary to secure authorization for a larger number of shares than presently needed. In future years, if more capi

14、tal is needed, the previously authorized shares will be readily available for issue; otherwise, the corporation would be forced to apply to the state for permission to increase the number of authorized shares.,14,8.3.1 Authorization of Stock,In issuing stock, the stock must be authorized by the gove

15、rnment. The number of shares the corporation can issue is called authorized shares. Issued stock is the stock that has been sold to a stockholder and for which a stock certificate has been issued. Outstanding stock is the stock that is in the hands of a stockholder.,15,8.3.2 Par Value,The chief sign

16、ificances of par value is that it represents the legal capital per share. There is no necessary relationship between the price at which a corporation issues stock, and the price at which the stocks trades in the marketplace, and the par value of the stock. If a corporation issues par value stock at

17、a price in excess of par, the stock is said to be issued at a premium.,16,8.3.3 Common Stock to share proportionately in management (the right to vote for directors); to share proportionately in corporate assets upon liquidation, etc. Such an stock would be classed as common stock.,17,1)The Preferen

18、ces of Preferred Stock Stocks that carry certain specified preferences, or first claim are called preferred stock. Usually these preferences show as follow: (1)Preference as to dividends. Shares with a dividend preference entitle their owners to receive dividends of a certain amount (often expressed

19、 as a percent of the par value of the shares).,18,(2)Preference as to assets. Shares with a liquidating preference entitle the holders to receive, in the event the corporation liquidates, a certain amount before shares with secondary preference or no preference receive anything.,19,2)Classes of Pref

20、erred Stock (1)Stock preferred as to dividends. Stock preferred as to dividends is entitled to receive each year a dividend of specified amount before any dividend is paid to the common stock. The dividend is usually stated as a dollar amount per share. Some preferred stocks state the dividend prefe

21、rence as a percentage of par values.,20,(2)Cumulative preferred stock. Preferred stock on which the claims for dividends may be accumulated from year to year is called cumulative preferred stock. If the directors do not declare the dividend in any year (no matter if it is due to insufficient earning

22、s or other reasons), the unpaid amount will accumulate until it is paid out of the earnings of subsequent years.,21,(3)Noncumulative preferred stock. The preferred stock on which the claim for dividends do not accumulate from year to year is called noncumulative preferred stock. The holder of noncum

23、ulative preferred stock is only entitled to receive dividends if the earnings for the year are sufficient to pay such dividends and if the board of directors declares them.,22,(4)Full participating preferred stock. A full participating preferred stock is one which, in addition to the regular specifi

24、ed dividend, is entitled to participate in any additional dividend paid as the common stock.,23,(5)Stock preferred as to assets. Most preferred stocks carry a preference as to cash and other assets in the event of liquidation of the corporation. If the business is terminated, the preferred stock is

25、entitled to payment in full of its par value or a higher stated liquidation value before any payment is made to the common stock. ,24,(6)Callable preferred stock. Most preferred stocks include a call provision. This provision grants the issuing corporation the right to repurchase the stock from the

26、stockholders at a stipulated call price.,25,(7)Convertible preferred stock. In order to add to the attractiveness of preferred stock as an investment, corporation sometimes offer a conversion privilege which entitles the preferred stockholders to exchange their shares for common stock in a stipulate

27、d ratio.,26,8.3.4 Accounting for Capital Stock,In the balance sheet, the par values or stated values or different forms of stock (preferred, common) are shown separately, as is any excess or deficiency received for the shares. These differences are called premium and discount, respectively, for par

28、value stock.,27,8.3.5 Subscription to Capital Stock,When stockholders sign a contract to purchase a specified number of shares on credit with payment due at one or more specified future dates, accounting recognition must be given when these transactions occur. The purchase price is debited to stock

29、subscriptions receivable. Capital stock subscribed is credited for the par, stated, or assigned amount per share. The difference is credited to paid in capital in excess of par.,28,8.4 Dividends,Dividends are the distribution of retained earnings by a corporation to its shareholders on record. Divid

30、ends can be cash dividends and stock dividends. Cash dividends are paid in cash while stocks dividends are distributed by issuing additional stocks to present shareholders on a pro rata basis. Dividends reduce both total assets and stockholders equity. The reduction in stockholders equity is reflect

31、ed by decreasing the balance in the retained earnings account.,29,8.4.1 Cash Dividends,The prospect of receiving cash dividends is a principal reason for investing in the stocks of corporations. Stockholders are keenly interested in prospects for future dividends and as a group are strongly in favor

32、 of more generous dividend payments. The board of directors, on the other hand, is primary concerned with the long- run growth and financial strength of the corporation, it may prefer to restrict dividends to a minimum in order to conserve cash for purchase of plant and equipment or for other needs

33、of the company.,30,8.4.2 Stock Dividends,A cash dividend reduces the assets of a corporation and reduces the stockholders equity by the same amount. A stock dividend, on the other hand, causes no change in assets and no change in the total amount of stockholders equity. The only effect of a stock di

34、vidend on the accounts is to transfer a portion of the retained earnings into the Common Stock account and the Paid in Capital from Stock Dividends account.,31,1)Reasons for Distribution of Stock Dividends Many reasons have been given for the popularity of stock dividend. The principal are: (1)To co

35、nserve cash. (2)To reduce the market price of a corporations stock to more convenient trading range by increasing the number of shares outstanding. ,32,3)To avoid income tax on stockholders. For income tax purpose, stock dividends are not considered as income to the recipient, no income tax is payab

36、le. 2）Entries to Record Stock Dividends,33,8.5 Accounting for Retained Earnings,Corporations earnings are accumulated separately from its paid in equity capital. Some of the major transactions related to retained earnings are:,34,8.5.1 Cash Dividends,Cash dividends reduce retained earnings and become a current liability when declared.,35,8.5.2 Stock Dividends,Stoc