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Lecture Principles of financial accouting - Chapter 13: Accounting for corporations

After completing this chapter you should be able to: Identify characteristics of corporations and their organization; explain characteristics of, and distribute dividends between, common and preferred stock; explain the items reported in retained earnings; compute earnings per share and describe its use; compute price-earnings ratio and describe its use in analysis. | Chapter 13 Accounting for Corporations Chapter 13: Accounting for Corporations Privately Held Publicly Held Ownership can be Corporate Form of Organization Existence is separate from owners An entity created by law Has rights and privileges C 1 Corporations are entities, created by law, that exist separately from their owners and that have rights and privileges. Corporations may be privately or publicly owned. Publicly owned corporations have additional reporting responsibilities beyond those of a privately held corporation. Characteristics of Corporations Advantages Separate legal entity Limited liability of shareholders Transferable ownership rights Continuous life Lack of mutual agency for shareholders Ease of capital accumulation Disadvantages Governmental regulation Corporate taxation C 1 The corporate form of organization has several advantages: It is a separate legal entity that can enter into contracts and sue and be sued. Stockholders’ losses are limited to the amount . | Chapter 13 Accounting for Corporations Chapter 13: Accounting for Corporations Privately Held Publicly Held Ownership can be Corporate Form of Organization Existence is separate from owners An entity created by law Has rights and privileges C 1 Corporations are entities, created by law, that exist separately from their owners and that have rights and privileges. Corporations may be privately or publicly owned. Publicly owned corporations have additional reporting responsibilities beyond those of a privately held corporation. Characteristics of Corporations Advantages Separate legal entity Limited liability of shareholders Transferable ownership rights Continuous life Lack of mutual agency for shareholders Ease of capital accumulation Disadvantages Governmental regulation Corporate taxation C 1 The corporate form of organization has several advantages: It is a separate legal entity that can enter into contracts and sue and be sued. Stockholders’ losses are limited to the amount invested in the corporation. Ownership rights are transferable. The corporation continues in existence even when ownership changes. Stockholders are not agents of the corporation and can not enter into contracts on the corporation’s behalf. Capital needs can be met by selling more ownership in the corporation. Two disadvantages include extra governmental regulations imposed on corporations and corporate taxation of earnings. Corporations pay taxes on their earnings and if they distribute a dividend to shareholders, the shareholders pay taxes on the dividends received. This is sometimes referred to as double taxation. Shareholders Board of Directors President, Vice-President, and Other Officers Employees of the Corporation Corporate Organization and Management C 1 In general, the creation of a corporation begins when its organizers, called the promoters or incorporators, obtain a registration from a government body or the court. When the process is complete and fees paid, the registration is