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Lecture Financial accounting: Tools for business decision-making (7th edition) – Chapter 11

Chapter 11 - Reporting and alayzing shareholder’s equity. This chapter include objectives: Identify and discuss the major characteristics of a corporation; record share transactions; prepare the entries for cash dividends, stock dividends, and stock splits, and understand their financial impact;. | CHAPTER 11: REPORTING AND ALAYZING SHAREHOLDER’S EQUITY LO 1: Identify and discuss the major characteristics of a corporation. LO 2: Record share transactions. LO 3: Prepare the entries for cash dividends, stock dividends, and stock splits, and understand their financial impact. LO 4: Indicate how shareholders’ equity is presented in the financial statements. LO 5: Evaluate dividend and earnings performance. LEARNING OBJECTIVES A separate legal entity Separate and distinct from its owners Has most of the rights and privileges of a person May be public or private Public: many shareholders, shares are publicly traded and held Private: few shareholders, shares are closely held and not traded The Corporate Form of Organization Separate legal existence Limited liability of shareholders Transferable ownership rights Ability to acquire capital Continuous life Corporation management Government regulations Income tax Characteristics of Corporation Advantages Separation of management and . | CHAPTER 11: REPORTING AND ALAYZING SHAREHOLDER’S EQUITY LO 1: Identify and discuss the major characteristics of a corporation. LO 2: Record share transactions. LO 3: Prepare the entries for cash dividends, stock dividends, and stock splits, and understand their financial impact. LO 4: Indicate how shareholders’ equity is presented in the financial statements. LO 5: Evaluate dividend and earnings performance. LEARNING OBJECTIVES A separate legal entity Separate and distinct from its owners Has most of the rights and privileges of a person May be public or private Public: many shareholders, shares are publicly traded and held Private: few shareholders, shares are closely held and not traded The Corporate Form of Organization Separate legal existence Limited liability of shareholders Transferable ownership rights Ability to acquire capital Continuous life Corporation management Government regulations Income tax Characteristics of Corporation Advantages Separation of management and ownership Separate legal entity Limited liability of shareholders Potential for reduced income tax Ease of transferring ownership rights (shares) Ability to acquire capital Continuous life Advantages and Disadvantages of a Corporation Disadvantages Increased cost and complexity to follow government regulations Increased reporting and disclosure requirements Why might the advantages of a corporation differ for a large publicly-traded company compared to a small private company? Discussion Question To raise capital, the corporation sells ownership rights in the form of shares Shares can be divided into different classes Usually referred to as common shares and preferred shares Ownership rights are specified in articles of incorporation or in by-laws Rights in voting, dividends, liquidation Share Issue Considerations Authorized shares Maximum amount of shares allowed to sell May be limited or unlimited Not recorded; disclosed only Issued shares Number of shares sold Legal capital Share capital