Principles of Accounting: Chapter Fourteen

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Chapter 14 provides in-depth coverage of accounting issues that are unique to corporations. The chapter begins with a discussion of the nature of the corporate entity, and its advantages and disadvantages. There are various types of stock, and each type has unique features. The second section of the chapter highlights common and preferred stock, and identifies features that should be fully understood. The presence of multiple classes of stock requires deeper understanding of dividends and capital structure, as described in the chapter.

Companies may buy back shares of their own stock, which are known as treasury shares. The proper accounting for treasury stock involves certain unique principles and practices. Companies would generally not recognize gains and losses on such transactions.

As described in the chapter, the appropriate accounting for stock splits and stock dividends depends on the legal form of the transaction. The accounting methodology is further impacted for stock dividends, based upon whether a transaction is deemed to be a large or small stock dividend. The chapter concludes with an illustrative statement of stockholders' equity, which is more extensive and often substituted for a statement of retained earnings.

Exercises

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Problems
Goals Achievement
Fill in the Blanks
Multiple Choice
Objectives
Key Terms

Fill in the Blanks: Chapter Fourteen

1. A ____________ corporationis an artificial being, existing only in contemplation of law.

2. A corporation is created by obtaining a ____________charter from one of the states.

3. A ____________closely held is a corporation which has shares of stock owned by relatively few persons.

4. The taxing of income to the corporation, and the subsequent taxing of dividends to the stockholders is commonly termed____________double taxation.

5. The ____________preemptive right allows existing shareholders the opportunity to maintain their respective interests in a corporate entity by acquiring additional shares on a pro rata basis.

6. The feature that allows a corporation to reacquire stock, at the corporation's option, is commonly known as the ____________call feature; the feature that allows the shareholder to exchange preferred shares for common shares is called the ____________conversion feature.

7. The significance of par value is that it represents ____________legal capital per share of stock.

8. A debit balance in Retained Earnings is commonly referred to as a ____________deficit.

9. The ____________date of record is the date that corporate records are reviewed to determine who will receive a previously declared dividend.

10. The number of shares that a corporation is permitted to issue is termed the ____________authorized shares, whereas the number of shares actually issued and held by stockholders is termed ____________outstanding shares.

11. For a preferred stock to have dividends in arrears, it must be ____________cumulative.

12. Corporations frequently purchase shares of their own stock. These shares are termed ____________treasury stock.

13. When a corporation reissues treasury stock at more than its cost, the ____________paid-in capital from treasury stock account should be increased.

14. A ____________stock split involves increasing the number of shares outstanding and reducing the stock's par or stated value per share.

15. Accounting for a small stock dividend is based on ____________market value.