2. Chapter 13-1 CHAPTER 13 CORPORATIONS: ORGANIZATION AND CAPITAL STOCK TRANSACTIONS Accounting Principles, Eighth Edition

3. Chapter 13-2 An entity separate and distinct from its owners. The Corporate Form of Organization Classified by Purpose Not-for-Profit For Profit Classified by Ownership Publicly held Privately held  Salvation Army  American Cancer Society  Gates Foundation  Cargill Inc.  Riverside Bank

4. Chapter 13-3 Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Government Regulations Additional Taxes Corporate Management Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation LO 1 Identify the major characteristics of a corporation. Advantages Disadvantages

5. Chapter 13-4 Separate Legal Existence Limited Liability of Stockholders Transferable Ownership Rights Ability to Acquire Capital Continuous Life Government Regulations Additional Taxes Corporate Management Characteristics that distinguish corporations from proprietorships and partnerships. Characteristics of a Corporation LO 1 Identify the major characteristics of a corporation.

6. Chapter 13-5 Characteristics of a Corporation LO 1 Identify the major characteristics of a corporation. Stockholders Chairman and Board of Directors President and Chief Executive Officer General Counsel and Secretary Vice President Marketing Vice President Finance/Chief Financial Officer Vice President Operations Vice President Human Resources TreasurerController Illustration 13-1 Corporation organization chart

7. Chapter 13-6 File application with the Secretary of State. State grants charter. (creation) Corporation develops by-laws. (rules & procedures) Initial Steps: Forming a Corporation LO 1 Identify the major characteristics of a corporation.

8. Chapter 13-7 1.Vote in election of board of directors and on actions that require stockholder approval. www.Riversidebankhv.com Stockholders have the right to: Ownership Rights of Stockholders LO 1 Identify the major characteristics of a corporation. 2.Share the corporate earnings through receipt of dividends. CHGCHG, GE, JNJGEJNJ Illustration 13-3

9. Chapter 13-8 3.Keep the same percentage ownership when new shares of stock are issued (preemptive right * ). Stockholders have the right to: Ownership Rights of Stockholders LO 1 Identify the major characteristics of a corporation. * A number of companies have eliminated the preemptive right. Illustration 13-3

10. Chapter 13-9 4.Share in assets upon liquidation in proportion to their holdings. This is called a residual claim. Stockholders have the right to: Ownership Rights of Stockholders LO 1 Identify the major characteristics of a corporation. Illustration 13-3

11. Chapter 13-10 Stock Issue Considerations LO 1 Identify the major characteristics of a corporation. Charter indicates the Number of authorized shares is often reported in the stockholders’ equity section. Authorized Stock

12. Chapter 13-11 Stock Issue Considerations LO 1 Identify the major characteristics of a corporation. Corporation can issue common stock directly to investors or indirectly through an investment banking firm. Factors in setting price for a new issue of stock: Issuance of Stock

13. Chapter 13-12 Stock Issue Considerations LO 1 Identify the major characteristics of a corporation. Stock of publicly held companies is traded on organized exchanges. Interaction Prices set by Factors beyond a company’s control, Market Value of Stock

14. Chapter 13-13 Stock Issue Considerations LO 1 Identify the major characteristics of a corporation. Years agoYears ago, par value determined the legal capital per share that a company must retain in the business for the protection of corporate creditors. Today many states do not require a par value. (But we still have to learn it!) No-par value stock is quite common today. FYI… stated value is synonymous with par value. Par and No-Par Value Stock

15. Chapter 13-14 Paid-in Capital Retained Earnings Account Account Paid-in Capital in Excess of Par Account Account Two Primary Sources of Equity Common Stock Account Account Preferred Stock Account Account Corporate Capital LO 2 Differentiate between paid-in capital and retained earnings. Paid-in capital is the total amount of cash and other assets paid in to the corporation by stockholders in exchange for capital stock.

16. Chapter 13-15 Differences in Corporate Capital LO 2 Differentiate between paid-in capital and retained earnings. Comparison of the owners’ equity (stockholders’ equity) accounts reported on a balance sheet for a proprietorship, a partnership, and a corporation. Illustration 13-6

17. Chapter 13-16 Illustration: Illustration: Viking Corporation issued 300 shares of $1 par value common stock for $4,100. Prepare Vikings’ journal entry. LO 3 Record the issuance of common stock. Accounting for Common Stock Issues

18. Chapter 13-17 Illustration: Illustration: Carp Corporation issued 600 shares of no-par common stock for $10,200. Prepare Carp’s journal entry if: (a) the stock has a par/stated value of $2 per share, (b) the stock has no par/stated value, and a. b. Accounting for Common Stock Issues “no-par stock” versus “par/stated stock” LO 3 Record the issuance of common stock.

19. Chapter 13-18 Corporations also may issue stock for: Services (attorneys or consultants). Noncash assets (land, buildings, and equipment). Accounting for Common Stock Issues LO 3 Record the issuance of common stock. Cost is either the fair market value of the consideration given up, or the fair market value of the consideration received, whichever is more clearly determinable. Why?

20. Chapter 13-19 E13-5 E13-5 On March 2 nd, Leone Co. issued 5,000 shares of $5 par value common stock to attorneys in payment of a bill for $30,000 for services provided in helping the company to incorporate. Organizational expense30,000 Common stock (5,000 x $5) 25,000 Paid-in capital in excess of par5,000 LO 3 Record the issuance of common stock. Accounting for Common Stock Issues

21. Chapter 13-20 BE13-5 BE13-5 Kane Inc.’s $10 par value common stock is actively traded at a market value of $15 per share. Kane issues 5,000 shares to purchase land advertised for sale at $85,000. Journalize the issuance of the stock in acquiring the land. LO 3 Record the issuance of common stock. Accounting for Common Stock Issues

22. Chapter 13-21 Paid-in Capital Retained Earnings Account Account Paid-in Capital in Excess of Par Account Account Less: Treasury Stock AccountLess: Treasury Stock Account Two Primary Sources of Equity Common Stock Account Account Preferred Stock Account Account Accounting for Treasury Stock LO 4 Explain the accounting for treasury stock.

23. Chapter 13-22 Treasury stock - corporation’s own stock that it has reacquired from shareholders, but not retired. Corporations purchase their outstanding stock: 1.To reissue the shares to officers and employees under bonus and stock compensation plans. 2.To enhance the stocks market value and earnings per share. 3.To have available for use in the acquisition of other companies. 4.To avoid a takeover. Accounting for Treasury Stock LO 4 Explain the accounting for treasury stock.

24. Chapter 13-23 Purchase of Treasury Stock Treasury stock is a contra stockholders’ equity account, not an asset. Debit Treasury Stock for the price paid to reacquire the shares. (example to follow) Purchase of treasury stock from the open market reduces stockholders’ equity. Accounting for Treasury Stock LO 4 Explain the accounting for treasury stock.

25. Chapter 13-24 Treasury stock (1,000 x $28) 28,000 Cash 28,000 Illustration: UC Company originally issued 15,000 shares of $1 par, common stock for $25 per share. Record the journal entry for the following transaction: On April 1 st the company reacquired 1,000 shares for $28 per share. Accounting for Treasury Stock LO 4 Explain the accounting for treasury stock.

26. Chapter 13-25 Accounting for Treasury Stock LO 4 Explain the accounting for treasury stock. Stockholders’ Equity with Treasury stock Both the number of shares issued (15,000), outstanding (14,000), and the number of shares held as treasury (1,000) are disclosed.

27. Chapter 13-26 Features often associated with preferred stock. 1. Preference as to dividends. 2. Preference as to assets in liquidation. 3. Nonvoting. LO 5 Differentiate preferred stock from common stock. Preferred Stock Accounting for preferred stock at issuance is similar to that for common stock.

28. Chapter 13-27 BE13-7 Acker Inc. issues 5,000 shares of $100 par value preferred stock for cash at $130 per share. Journalize the issuance of the preferred stock. LO 5 Differentiate preferred stock from common stock. Preferred Stock Preferred stock may have a par value or no-par value.

29. Chapter 13-28 Dividend Preferences Right to receive dividends before common stockholders. Per share dividend amount is stated as a percentage of the preferred stock’s par value or as a specified amount. Cumulative dividend – holders of preferred stock must be paid their annual dividend plus any dividends in arrears before common stockholders receive dividends. LO 5 Differentiate preferred stock from common stock. Preferred Stock

30. Chapter 13-29 LO 6 Prepare a stockholders’ equity section. Statement Analysis and Presentation Illustration 13-12