Corporation An artificial being created by operation of law having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence

AdvantagesDisadvantages 1. Limited liability of shareholders 1. Complicated in formation 2. Transferability of shares 2. Greater degree of government control and supervision 3. Continued life existence 3. Centralized management 4. Greater source of funds 4. Heavier income tax

Kinds of Corporation  Stock Corporations  Non-Stock Corporations

Components of Corporation 1.Incorporators 2.Corporators 3.Shareholders or members 4.Subscribers

Articles of Incorporation – basic instrument by which a corporation is formed under the corporation statutes, executed by several persons as incorporators. By- Laws – the regulations, ordinances, rules or laws adopted by any association or corporation for its government. Stock certificate or share certificate – evidence of the shareholder’s ownership interest in a corporation.

Corp.Partner ship Sole Proprietor ship 1.OwnersSeveral (at least 5) 2 or moreone 2. Ownership Account Sharehold er’s Equity Partners’ capital Owner’s capital

Corp.Partner ship Sole Proprietor ship 3. Equity section of Balance Sheet Shareholder’s equity Partners ’ equity Owner’s equity 4. Income Summary close to Accum.Profits /Losses (Retained Earnings) Partners ’ capital Owner’s capital

Share Capital (Capital Stock) 1.Share Capital 2.Subscribed Share Capital (subscribed capital stock) 3.Subscriptions Receivable 4.Treasury Share

Major Classifications of Share Capital 1.Ordinary Share (Common Stock) 2.Preference Share (Preferred Stock)

Classifications of Preference Share Capital 1.Cumulative preference shares 2.Noncumulative preference shares 3.Participating preference shares 4.Nonparticipating preference shares 5.Convertible preference shares 6.Redeemable or callable preference shares

Accounting for Share Capital Transactions 1)Authorization 2)Subscription 3)Issuance 4)Reacquisition 5)Retirement

Illustrations: 1.) Assume that Thai Co. was authorized to issue 10,000 equity shares at par value of P100 per share

Share Capital Acc. No. 300 DebitCredit The company wasAuthorized to issue P1,000,000 numberShares at par value of P100 per share

2.)Assuming that the incorporators of Thai Co. subscribed to the 25% of the total authorized share capital of P1,000,000 at par of P100 per share and paid 25% of the subscribed share capital.

3.) Assume further that all of the P250,000 total subscribed share capital is fully paid. 4.) Additional 1000 equity shares were subscribed at par of P100 per share and paid 30% of the subscribed share capital.

5.) Assume that additional 500 equity shares are issued for cash of P120 per share 6.) Total net income for the year is P50,000

Thai Co Shareholders’ Equity As of January 31, 20xx Share capital, P100 par, 10,000 shares authorized, issued 3,000 shares P300,000 Subscribed share capital, 1,000 shares P100,000 Less: Subscription Rec. 70,000 30,000 Share premium10,000 Accumulated Profits50,000 Total P390,000

Issuance of Share Capital for Noncash consideration 1.Tangible or intangible property 2.Services rendered 3.Equity shares issued by the other corporation 4.Unpaid liabilities of the issuing corporation

Note for a non-cash consideration received in order of priority: 1.Fair market value of non cash consideration received 2.Fair market value of share capital issued 3.Par value of share capital *If exchange of liability, the basis for the value of the share capital issued is the amount of liability set off.

Illustration: A Co. issued its 1,000 shares with a par value of P100 per share for a parcel of land. Assuming that the equity share has a fair market value of P120 per share and the land has a fair market value of P150,000.

Illustration 2: Assume that the 1,000 shares at P100 par with fair market value of P130 per share are issued as compensation of services rendered by the corporate consultant.

Illustration 3: Assume that A Co. issued 2,000 shares at P20 par with a market value of P50 per share as payment of its outstanding loans payable of P50,000

Dividends distributions to stockholders of corporate earnings in proportion to the number of shares held by them. Distributions may take form of cash, non cash assets, notes or other evidence of corporate indebtedness, and shares of the company’s own stock.

Important Dates: 1.Date of Declaration 2.Date of stockholder’s record 3.Date of payment or distributions

Kinds of Dividends 1.Cash Dividends 2.Property Dividends 3.Stock Dividends  small share capital dividend – less than market value on the date of declaration or par value whichever is higher.  large share capital dividend – 20% or par value of the shares to be issued.

Kinds of Dividends 1.Cash Dividends Declaration Date: Accumulated Profits xxx Cash Dividends Payable xxx Payment: Cash Dividends Payable xxx Cash xxx

Kinds of Dividends 2.Property Dividends Declaration Date: Accumulated Profits xxx Property Dividends Payable xxx Payment: Property Dividends Payable xxx Asset xxx

Kinds of Dividends 3. Stock Dividends Declaration Date: Accumulated Profits xxx Stock Dividends Distributable xxx Share Premium form Stock Dividends xxx Payment: Stock Dividends Distributable xxx Share Capital xxx

Illustration: Assume that on January 15, 2011, P2.50 cash dividend for each share holding was declared to shareholders on record as of January 31, 2011 payable on March 15, The equity of the GFR Company as of January 31, 2011 was as follows:

Share capital (ordinary shares) Authorized, 1,000,000 shares at P10 par value P10,000,000 Unissued shares, 400,000 shares 4,000,000 P 6,000,000 Accumulated Profits P 1,500,000 Treasury Shares, 200,000 shares at cost P5 P 1,000,000 Required: Journalize above transactions

Illustration 2: Assume that on January 15, 2011, 1 share of ordinary share for every 10 share holding was declared as share capital dividend to shareholders on record as of January 31, 2011 payable on March 15, 2011.

The share of GFR Corporation was selling in the market as: Dec 31, P12/share; Jan 15, 2011 – P14/share; Jan 31, 2011 – P15/share; March 15, 2011 – P13/share

Dividends on Ordinary Share and Preference Share

Dividend Rights of Preference Share  Cumulative preference share – entitled to any dividend in arrears  Participating preference share – entitled to receive dividends in excess of the regular dividends.

1.Noncumulative and nonparticipating 2.Noncumulative and participating 3.Cumulative and nonparticipating 4.Cumulative and participating

100,000 50,000 20,000 30,000 20, ,

30,000 50, ,000 80,000120, , ,

50, ,000 50,000250,000300,

50,000 25,00075,000 30,000 15,00045,000 80,000 40, ,

50,000 25,00075, ,000 83,333 41, , ,33366,667200,

50,000 25,00075, , ,000 75,000225, , , ,

100,000 50,000 20,000 30,000 20, ,

30,000 50,000 25,000 95,000 63,333 31, ,33356,667200,

50,000 25, , ,000 75, ,000100,000300,

Accounting for Treasury Shares

Illustration: The shareholder’s equity of FED Corp. included the following items: Ordinary shares, P20 par, 50,000 stocks P1,000,000 Share Premium in excess of par (P5 per share) 250,000 Accumulated Profits 500,000 On September 1, 2010, 1,000 shares were reacquired at P24. On September 30, 700 shares were issued at P30.