Download Advantages & Disadvantages of Corporate Finance: Stock, Bonds, Accounting and more Quizzes Financial Accounting in PDF only on Docsity!
Corporation Advantages
- raise capital [sell stock] - continuous life - easy transfer of ownership - no mutual agency - limited liability TERM 2
Corporation Disadvantages
DEFINITION 2
- separation between owners and managers - double taxation
- expensive regulations TERM 3
Capital Stock
DEFINITION 3 State authorizes how many shares corp. can sell. 1share=1vote TERM 4
Issuing Stock
DEFINITION 4 -> par value - legal minimum value stock can sell for -> usually set low, but arbitrary -> no par stock - no par, may have stated value acts like par TERM 5
Issuing Stock at Par
DEFINITION 5 corp issued 5000 shares of Common Stk at par of $2/share cash 10,000 C.S. 10,000 |-> always recorded at par issued 5,000 shares CS, $2 par, $5/share cash 25,000 CS 10, P.E.C. CS 15,
Preferred Stock Dividend
Dividend % * par value = Dividends payable per share TERM 7
Bonds Payable
DEFINITION 7 bond holder - gets bond - gives money - lender bond issuer - gives bond - gets money - borrower if stated rate = market rate = face value if stated rate < market rate = discount if stated rate > market rate = premium TERM 8
Bonds Payable
Cont.
DEFINITION 8 MARKET VALUE = 100 $1000 bond issued at 98 cash 980 discont on b/p 20 b/p 1000 $1000 bond issued at 110 cash 1100 B/p 1000 premium on b/p 100 TERM 9
Accounting for Bonds Payable at Market Value
DEFINITION 9 Jan 1 2007 corp issued for cash $100,000, 8% , 10-yr bonds at par int paid semi annually 1-1-07 cash 100,000 b/p 100,000 6-30 int. exp 4,000 cash 4,000 (entry made every 6 mo.) 12-31-17 B/P 100,000 cash 100, TERM 10
Accounting for Bonds Payable at Discount
DEFINITION 10 issued at discount - price drops to 98 1-1-07 cash 98,000 discount b/p 2,000 B/P 100,000 amortize discount -> equal amt. over # of periods till mature raises interest expense $2,000/20 pay periods = 100 per period 6-30 int exp 4100 discount on b/p 100 cash 4000
