Corporate Basics
What is one key legal feature of a corporation that protects shareholders from personal losses?
Limited liability
What type of stock usually has no voting rights but a fixed dividend?
Preferred stock
What is it called when a company buys back its own shares?
Treasury stock
What part of equity holds the accumulated profits not paid out as dividends?
Retained earnings
What does ROE (Return on Equity) measure?
Profitability from shareholders' perspective
Which body elects the Board of Directors in a corporation?
Shareholders
Which stock gives ownership and voting rights to investors?
Common stock
What type of stock has no minimum issuance price and may or may not have a stated value?
No-par stock
Name the three key dates for cash dividend declaration and payment.
Declaration date, date of record, payment date
What does a high debt-to-equity ratio indicate?
Higher financial leverage and risk
What feature allows a corporation to exist indefinitely, despite changes in ownership?
Continuous life (perpetual existence)
What right allows shareholders to maintain their ownership percentage during new share issues?
Preemptive right
How is the issuance of common stock at par value recorded in the books?
Credit common stock for par value, excess to paid-in capital
How does a stock dividend affect the retained earnings account?
It reduces retained earnings and increases paid-in capital
What is the formula to calculate the payout ratio?
Cash dividends / Net income
Why is transferability of shares beneficial to corporations?
Helps raise capital and attracts investors
What type of preferred stock allows holders to exchange it for common stock?
Convertible preferred stock
What is the accounting treatment for reissuing treasury stock above cost?
Credit additional paid-in capital
What is the key difference between stock splits and stock dividends in accounting treatment?
Stock splits require no journal entry; stock dividends do
What does a negative retained earnings balance represent?
Accumulated deficit
What structural advantage allows corporations to secure more long-term investment than partnerships?
Separation of ownership and management, allowing access to public equity markets
Name two features of callable preferred stock.
Can be repurchased by company;
often includes a call premium paid to shareholders.
Why is treasury stock considered a contra-equity account?
It reduces total stockholders' equity
In a property dividend, what value is used to record the asset distributed?
Fair market value of the asset
In the ROE formula, why are preferred dividends subtracted from net income?
To measure returns available to common shareholders only