1. What is a corporation?

Corporation is a business organized under state law that is a separate legal entity

2. List three characteristics of a corporation

 Lack of mutual agency

 Indefinite life
 Taxation

3. How does authorized stock differ from outstanding stock?

Authorized stock is the maximum shares of stock issued, whist the outstanding stock is the stock
held by stakeholders

4. What are the four basic rights of stockholders?

 Vote: Stockholders participate in management indirectly by voting on corporate

matters at stockholders’ meetings. This is the only way in which a stockholder can
help to manage the corporation. Normally, each share of basic ownership in the
corporation carries one vote. 

 Dividends: Stockholders receive a proportionate part of any dividend that is declared

and paid. A dividend is a distribution of a corporation’s earnings to stockholders. 

 Liquidation: Stockholders receive their proportionate share of any assets remaining

after the corporation pays its debts and liquidates (goes out of business). 

 Preemptive right: Stockholders have a preemptive right to maintain their

Proportionate ownership in the corporation. This right, however, is usually withheld
by contract for most corporations. 

5. How does preferred stock differ from common stock?

Common stock represents basic ownership whilst preferred stock gives owners certain
advantages over common stock such as rights to vote
6. What is par value?

This is the stock price stated in cooperation’s charter

7. What are the two basic sources of stockholders’ equity? Describe each source.

Paid in capital: represents the amount received from stockholders stock

Retained earnings: equity earned by profitable operations that distributed to stockholders

8. What account is used to record the premium when issuing common stock? What type of
account is this?
The account used is pain in capital in excess par, which is a Credit account

9. If stock is issued for assets other than cash, how is the transaction recorded?

It is recorded at the market value of either the stock issued or the asset received
whichever more determinable

10. What is treasury stock? What type of account is Treasury Stock, and what is the
account’s normal balance?

Treasury stock is a stock that has been previously and later reacquired
Treasury stock is a contra equity account
And has a normal debit balance

11. Where and how is treasury stock reported on the balance sheet?
It is reported beneath retained earnings on the balance sheet as reduction to equity

12. What is the effect on the accounting equation when cash dividends are declared? What is
the effect on the accounting equation when cash dividends are paid?
 DECLARED:
Current liability: increases
dividends payable is credited
Stockholder's equity decreases
retained earnings is debited
  PAID:
Decrease in assets(cash) and liabilities(dividends payable)

13. What are the three relevant dates involving cash dividends? Describe each.

 The declaration of a cash dividend creates an obligation (liability) for the

corporation.
 Date of record is the date the corporation records which stockholders get dividend
checks.
 Payment of the dividend usually follows the record date by a week or two.

14. How does cumulative preferred stock differ from noncumulative preferred stock?

With cumulative preferred stock the owners must receive all dividends in areas before the
corporation pays dividends to the common stockholders.
Whereas with noncumulative the corporation is not required to pay any dividends in arrears.

15. What is a stock dividend?

A distribution of a corporation's own stock to its stockholders

16. What is the effect on the accounting equation when a stock dividend is declared? What is
the effect on the accounting equation when a stock dividend is distributed?

The declaration of stock dividend will decrease the retained earnings of the company; as

a result, the total stockholders' equity will decrease. Thus, the retained earnings will be
debited.

17. What are some reasons corporations issue stock dividends?

 To continue dividends but conserve cash.
 To reduce the market price per share of its stock.
 To reward investors
 18. What is a stock split?

An increase in the number of issued and outstanding shares of stock coupled with a
proportionate reduction in the par value of the stock.

19. What is reported in the discontinued operations section of the income statement?
Discontinued operations refer to parts of a company's core business or product line that
have been divested or shut down and that are reported separately from
continuing operations on the income statement

20. What does the statement of retained earnings report?

How the company's retained earnings balance changed from the beginning to the period to the
end of the period.

21. What is a prior-period adjustment?

A correction to retained earnings for an error in an earlier period

22. What does the statement of stockholders’ equity report? How does the statement of
stockholders’ equity differ from the statement of retained earnings?

While the retained earnings statement shows the changes between the beginning and
ending balances of the retained earnings account during the period, the statement of
stockholders' equity provides the changes between the beginnings and ending balances of each of
the stockholders' equity accounts, including retained
 23. What does earnings per share report, and how is it calculated?

The amount if net income (loss) for each share of the company's outstanding common stock. It
is calculated by taking net income minus preferred dividends, divided by the weighted average
number of common shares outstanding.

24. What is the price/earnings ratio, and how is it calculated?

The ratio of the market price of a share of common stock to the company's earnings per
share. It is calculated by taking the market price per share of common stock and dividing
it by earnings per share.

25. What does the rate of return on common stock show, and how is it calculated?

It shows the relationship between net income available to common stockholders and their
average common equity invested in the company. It is calculated by taking net income minus
preferred dividends and then dividing that number by average common stockholders' equity.
UNIVERSITY OF THE SOUTHERN CARIBBEAN
P.O BOX 175, PORT OF SPAIN

Corporations Assignment #1

An Assignment
Presented in Partial Fulfillment
Of the Requirements for the Course
Fundamentals of Accounting II

INSTRUCTOR:  Joshua Sandy

By

Kwason Taylor

June 1, 2020

Approval ……….……………..