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accounting entity concept
concept indicating that the financial activity of an entity (corporation) must be kept separate from that of the owners
additional paid-in capital
account for recording excess of the proceeds received from the issuance of the stock over the stock’s par value
appropriated retained earnings
portion of a company’s retained earnings designated for a particular purpose such as future expansion, special projects, or as part of a company’s risk management plan
articles of incorporation
(also, charter) define the basic structure and purpose of a corporation and the amount of capital stock that can be issued or sold
authorized shares
maximum number of shares that a corporation can issue to investors; approved by state in which company is incorporated and specified in the corporate charter
brokers
buy and sell issues of stock on behalf of others
capital
cash and other assets owned by a company
cash dividend
corporate earnings that companies pass along to their shareholders in the form of cash payments
common stock
corporation’s primary class of stock issued, with each share representing a partial claim to ownership or a share of the company’s business
contributed capital
owner’s investment (cash and other assets) in the business, which typically comes in the form of common stock
corporation
legal business structure involving one or more individuals (owners) who are legally distinct (separate) from the business
date of declaration
date upon which a company’s board of directors votes and decides to give a cash dividend to all the company shareholders; the date on which the dividends become a legal liability
date of payment
date that cash dividends are paid to shareholders
date of record
date the list of dividend eligible shareholders is prepared; no journal entry is required
debt-to-equity ratio
measures the portion of debt used by a company relative to the amount of stockholders’ equity, calculated by dividing total debt by total equity
deficit in retained earnings
negative or debit balance
dividend smoothing
practice of paying dividends that are relatively equal period after period even when earnings fluctuate
double taxation
occurs when income is taxed to the corporation that earned the income, and then taxed again to stockholders when they receive a distribution of the corporation’s income as dividends
earned capital
capital earned by the corporation as part of business operations
earnings per share (EPS)
measurement of the portion of a corporation’s profit allocated to each outstanding share of common stock
ex dividend
status of stock sold between the record date and payment date during which the investor is not entitled to receive dividends
going concern assumption
absent any evidence to the contrary, assumption that a business will continue to operate in the indefinite future
incorporation
process of constituting a company into a legal entity
initial public offering (IPO)
when a company issues shares of its stock to the public for the first time
investment banker
financial professional who provides advice to companies wishing to issue new stock, then purchase the stock from the company issuing the stock and resell the securities to the public
issued shares
authorized shares that have been sold to shareholders
large stock dividend
stock dividend distribution that is larger than 25% of the total outstanding shares just before the distribution
market value of stock
price at which the stock of public companies trades on the stock market
no-par stock
stock issued with no par value assigned to it in a corporate charter
organization costs
costs of organizing the corporate entity that include attorney fees, promotion costs, and filing fees paid to the state
outstanding shares
shares that have been issues and are currently held by shareholders
owners’ equity
business owners’ share of the company
par value
value assigned to stock in the company’s charter and is typically set at a very small arbitrary amount; serves as legal capital
preemptive right
allows stockholders the option to maintain their ownership percentage when new shares of stock are issued by the company
preferred stock
type of stock that entitles the holder to unique preferences that are advantageous over common stock features
prior period adjustments
corrections of errors that occurred on previous periods’ financial statements
private corporation
corporation usually owned by a relatively small number of investors; shares are not traded publicly, and the ownership of the stock is restricted to only those allowed by the board of directors
property dividend
stock dividend distribution of assets other than cash
publicly traded company
company whose stock is traded (bought and sold) on an organized stock exchange
restatement
correction of financial statement amounts due to an accounting error in a prior period
restricted retained earnings
portion of a company’s earnings that has been designated for a particular purpose due to legal or contractual obligations
reverse stock split
issuance of new shares to existing shareholders in place of the old shares by decreasing the number of shares and increasing the par value of each share
secondary market
organized market where previously issued stocks and bonds can be traded after they are issued
Securities and Exchange Commission (SEC)
federal regulatory agency that regulates corporations with shares listed and traded on security exchanges through required periodic filings
small stock dividend
stock dividend distribution that is less than 25% of the total outstanding shares just before the distribution
special dividend
one-time extra distribution of corporate earnings to shareholders, usually stemming from a period of extraordinary earnings or special transaction, such as the sale of a company division
stated value
is an amount a board of director’s assigns to each share of a company’s stock; functions as the legal capital
statement of stockholders’ equity
provides the changes between the beginning and ending balances of each of the stockholders’ equity accounts during the period
stock discount
amount at which stock is issued below the par value of stock
stock dividend
dividend payment consisting of additional shares rather than cash
stock split
issuance of new shares to existing shareholders in place of the old shares by increasing the number of shares and reducing the par value of each share
stock trading
buying and selling of shares by investors and brokers
stockholder
owner of stock, or shares, in a business
treasury stock
company’s own shares that it has repurchased from investors
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