Chapter 11



Chapter 11: Acct for Stockholder’s Equity

Handouts, Demos, E11-17A / GQ#4 / AQ#6 / No Canvas

1) Three Main Forms of Business Organizations (pg 594):

a) Sole-Proprietorship (Fed Tax Form 1040 & Sch “C”)

b) Partnership (Federal Tax Form 1065)

c) Corporation (Federal Tax Form 1120 & 1120S)

o Articles of Incorporation (i.e. separate legal entity)

o Publicly-Held vs. Privately-Held Corporations

o Class Handout #1 (Entity Attributes)

2) Capital Structure of “Stockholder’s Equity” component:

a) Equity presentation for above entities:

(Sole Prop-pg 597 / Partnership-pg 598 / Corp-pg 603)

3) Our Focus: Corporation Components (pg 599-604):

a) Stock: Legal capital is generally called “Par” Value.

- Note: “Par” Value is not equal to “Market” Value!

b) Terms: Authorized, Issued & Outstanding shares.

c) Common vs. Preferred Stock (Class Handout #2)

d) Treasury Stock: Why would a firm buy back its stock?

4) Rewards to Shareholders (pg 605-607): (Class Handout #3)

a) Acct for Cash Dividends:

o “Declaration”, “Record” and “Payment” dates.

b) Acct for Stock Dividends: What is the purpose here?

c) Stock “Splits” & effect on the stock’s market price.

5) New Ratio involving Stockholder’s Equity: (E11-17A)

a) Price-Earnings (i.e. “P/E”) Ratio - Pg 611:

o One measurement of expected earnings-growth.

o What is an investor paying for when they purchase shares of stock in a company? Answer: Future earnings and/or potential growth of the company!

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