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Lecture Financial accounting: Chapter 11 - Robert Libby, Patricia A. Libby, Daniel G. Short

Chapter 11 - Reporting and interpreting owners’ equity. After studying this chapter, you should be able to: Explain the role of stock in the capital structure of a corporation, analyze the earnings per share ratio, describe the characteristics of common stock and analyze transactions affecting common stock, discuss dividends and analyze transactions,. | Reporting and Interpreting Owners’ Equity Chapter 11 Chapter 11: Reporting and Interpreting Owners’ Equity Understanding The Business Simple to become an owner Easy to transfer ownership Provides limited liability Advantages of a corporation Because a corporation is a separate legal entity, it can . . . Own assets. Sue and be sued. Incur liabilities. Enter into contracts. The corporate form of organization has several advantages. The major advantage is the ease of raising large amounts of money because both large and small investors can participate in corporate ownership. It is simple to become an owner of corporate shares of stock and it is just as simple to sell the shares. Organized exchanges, such as the New York Stock Exchange, maintain markets in which shares in thousands of companies are bought and sold each business day. Another advantage is limited liability. Stockholders’ losses are limited to the amount invested in the corporation. Corporate creditors cannot make claims on the personal assets of shareholders to satisfy corporate debt. Corporations are entities created by law that exist separately from their owners and that have rights and privileges. As separate entities, corporations can: Own assets. Incur liabilities. Sue and be sued. Enter into contracts. Stockholders are not agents of the corporation and cannot enter into contracts on the corporation’s behalf. Appointed by directors Ownership of a Corporation Ultimate control of a corporation rests with the stockholders. At their annual meeting, stockholders elect the Board of Directors and vote on important management issues facing the company. The members of the board of directors hire the executive officers of the corporation. Finally, officers of the corporation empower others to hire needed employees. Employees, officers, and members of the board of directors may also be owners of the corporation. Common Stock Transactions Two primary sources of stockholders’ equity Retained . | Reporting and Interpreting Owners’ Equity Chapter 11 Chapter 11: Reporting and Interpreting Owners’ Equity Understanding The Business Simple to become an owner Easy to transfer ownership Provides limited liability Advantages of a corporation Because a corporation is a separate legal entity, it can . . . Own assets. Sue and be sued. Incur liabilities. Enter into contracts. The corporate form of organization has several advantages. The major advantage is the ease of raising large amounts of money because both large and small investors can participate in corporate ownership. It is simple to become an owner of corporate shares of stock and it is just as simple to sell the shares. Organized exchanges, such as the New York Stock Exchange, maintain markets in which shares in thousands of companies are bought and sold each business day. Another advantage is limited liability. Stockholders’ losses are limited to the amount invested in the corporation. Corporate creditors cannot make .