Corporations: Organization and Capital Stock Transactions
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SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE
Study Objective 6
29. TF 117. MC 120. MC 123.MC 126.MC 143. MC 171.Ex115. MC 118. MC 121. MC 124.MC 127.MC 165. Ex 185.C116. MC 119. MC 122. MC 125.MC 142.MC 170. Ex
Study Objective 7
30. TF 128. MC 130. MC 132.MC 152.BE 173. Ex36. TF 129. MC 131. MC 144.MC 172.Ex 186. CNote: TF = True-False BE = Brief Exercise C = CompletionMC = Multiple Choice Ex = ExerciseThe chapter also contains one set of ten Matching questions and five Short-Answer Essayquestions.
CHAPTER STUDY OBJECTIVES
Identify the major characteristics of a corporation.
The major characteristics of acorporation are separate legal existence, limited liability of stockholders, transferableownership rights, ability to acquire capital, continuous life, corporation management,government regulations, and additional taxes.2.
Differentiate between paid-in capital and retained earnings.
Paid-in capital is the totalamount paid in on capital stock. It is often called contributed capital. Retained earnings is netincome retained in a corporation. It is often called earned capital.3.
Record the issuance of common stock.
When companies record the issuance of commonstock for cash, they credit the par value of the shares to Common Stock. They record in aseparate paid-in capital account the portion of the proceeds that is above or below par value.When no-par common stock has a stated value, the entries are similar to those for par valuestock. When no-par stock does not have a stated value, companies credit the entire proceedsto Common Stock.4.
Explain the accounting for treasury stock.
The cost method is generally used inaccounting for treasury stock. Under this approach, companies debit Treasury Stock at theprice paid to reacquire the shares. They credit the same amount to Treasury Stock when theysell the shares. The difference between the sales price and cost is recorded in stockholders'equity accounts, not in income statement accounts.5.
Differentiate preferred stock from common stock.
Preferred stock has contractualprovisions that give it priority over common stock in certain areas. Typically, preferredstockholders have a preference (1) to dividends and (2) to assets in liquidation. They usuallydo not have voting rights.6.
Prepare a stockholders' equity section.
In the stockholders' equity section, companiesreport paid-in capital and retained earnings and identify specific sources of paid-in capital.Within paid-in capital, two classifications are shown: capital stock and additional paid-incapital. If a corporation has treasury stock, it deducts the cost of treasury stock from totalpaid-in capital and retained earnings to obtain total stockholders' equity.