Accounting

Accounting for Corporations

CONT 3006

13
Corporations: Organization, Stock Transactions, and Dividends

Assigned problems & exercises EX 13-2 EX 13-12 EX 13-21 PR 13-1 A

EX 13-14

PR 13-5 A

1

1
Characteristics of a Corporation

Describe the nature of the corporate form of organization.

A corporation is a legal entity, distinct and separate from the individuals whocreate and operate it. As a legal entity, a corporation may acquire, own, and dispose of property in its own name.

13-4

Prof. Luis R. Rivera Valentín

1

Accounting for Corporations

CONT 3006

Public Corporations

1

The stockholders or shareholders who own the stock own the corporation. Corporations whose shares of stock are traded in public markets are called public corporations.Private Corporations

Board of Directors

Corporations whose shares are not traded publicly are usually owned by a small group of investors and are called nonpublic or private corporations. The stockholders of all corporations have limited liability.

The stockholders control a corporation by electing a board of directors. The board meets periodically to establish corporate policy. Italso selects the chief executive officer (CEO) and other major officers.

1
Exhibit Organizational Structure of a Corporation

1

Characteristics of a Corporation
Stockholders

• A corporation has separate legal • A corporation has transferable
existence from its owners. units of ownership.

Board of Directors

Officers

• A corporation has limited
stockholders’ liability.Employees

Prof. Luis R. Rivera Valentín

2

Accounting for Corporations

CONT 3006

Forming a Corporation
Exhibit

1

Advantages and Disadvantages of the Corporate Form

First step in forming a corporation is to file an application of incorporation with the state.

• Because state laws differ, corporations often • More than half of the largest companies are
organize in stateswith more favorable laws. incorporated in Delaware. • After the application is approved, the state grants a charter or articles of incorporation which formally create the corporation.

• Management and the board of directors prepare
bylaws which are operating rules and procedures.

1
Exhibit
Examples of Corporations and Their States of Incorporation

1

Costs may be incurred in organizinga corporation. The recording of a corporation’s organizing costs of $8,500 on January 5 is shown below:

Prof. Luis R. Rivera Valentín

3

Accounting for Corporations

CONT 3006

2
Describe the two main

The owner’s equity in a corporation is called stockholders’ equity, shareholders’ equity, shareholders’ investment, or capital. The two sources of capital are:

2Stockholders’ Equity

sources of stockholders’ equity.

13-17

1. Capital contributed to the corporation by the stockholders, called paid-in capital or contributed capital. 2. Net income retained in the business, called retained earnings.

2 Stockholders’ Equity Section of a Corporate Balance Sheet
Stockholders’ Equity Paid-in capital: Common stock Retained earnings Total stockholders’ equity

3$330,000 80,000 $410,000

If there is only one class of stock, the account is entitled Common Stock or Capital Stock.

A debit balance in Retained Earnings is called a deficit. Such a balance results from accumulated net losses. A credit balance in Retained Earnings does not represent surplus cash or cash left over from dividends.

Describe and illustrate the characteristics of stock, classesof stock, and entries for issuing stock.

13-22

Prof. Luis R. Rivera Valentín

4

Accounting for Corporations

CONT 3006

3

Characteristics of Stock

3 Classes of Stock

The number of shares of stock that a corporation is authorized to issue is stated in the charter. A corporation may reacquire some of the stock that has been issued. The stock remaining in the hands of...