Term
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Definition
| Accounts in which a specific owner’s interest in the entity is represented (in the owner’s equity accounts). |
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Term
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Definition
An entity may not make distributions to its shareholders if it would cause them to be unable to pay its debts as they become due in the usual course of business
Note: an entity may make certain judgments and assumptions in making this determination such as (1) reasonably anticipated generation of funds, (2) potential refinancing of debts, and (3) contingent liabilities |
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Term
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Definition
After distributions to shareholders, the corporation's total assets must be greater than or equal to its liabilities plus the amount needed to buy out all of the holders of preferred stock.
Note: the Board of Directors may use any reasonable method to determine assets and liabilities (need not comply w/ GAAP)
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Term
| What does it mean when a company "adopts a poison pill?" |
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Definition
| The company implements various provisions that make a company very difficult to acquire; the purpose is to prevent a hostile takeover |
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Term
| Why would a company do a stock re-purchase? |
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Definition
| They think their stock is undervalued. By taking stocks off the market it is prop up the value (anti-dilutive) |
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Term
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Definition
| Stock issued by a company that increases the number of outstanding stock (thus causing existing shares to be worth less) |
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Term
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Definition
| When part of the price of a buy-out is based on post-acquisition results for a certain number of years. |
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Term
| Retained Earnings Account |
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Definition
A capital account that states the cumulative amount of earnings the corporation has generated over time minus the cumulative amount of such earnings that have been paid out to shareholders in the form of dividends.
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Term
| There are two ways that a corporation may deploy earnings. What are they? |
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Definition
(1) distribute to shareholder (dividends)
(2) reinvest in the business (retained earnings) |
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Term
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Definition
| Money distributed to shareholder (can be in the form or cash or stocks) |
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Term
| How are cash dividends reflected in the financial statements? |
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Definition
As a liability.
Note: this does not affect the corporation's charter documents |
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Term
| How are stock dividends reflected in the financial statements? |
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Definition
Capital accounts are rearranged (but there is no change to assets or liabilities).
Note: This operates to dilute the value of each share. It may require amending the corporation’s charter to provide sufficient authorized shares to pay the stock dividend
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Term
| There are four types of stock dividends. What are they? |
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Definition
(1) large stock dividends, (2) small stock dividends, (3) stock splits, (4) reverse stock splits
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Term
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Definition
| Stock dividends involving issuance of a # of shares equaling 20% or more of the shares outstanding. Capital accounts are rearranged based on par value or stated value of the dividend shares |
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Term
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Definition
| Stock dividends involving the issuance of a # of shares equal to less than 20% of the shares outstanding not rearranged by par value or stated value, but based on the market value of those shares. |
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Term
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Definition
Splitting the existing # of outstanding shares into a new #.
Ex: 2 for 1 stock split doubles the amount of shares
This resembles a 100% stock dividend, BUT for stock w/ par value, the par value of all shares is changed in proportion to the change in # of shares (2 for 1 cuts the par value in half)
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Term
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Definition
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The opposite of a stock split. Reduces the # of outstanding shares.
Ex: A 1 for 1 stock split cuts the # of outstanding shares in half (and par value per share would double)
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Term
| What is the purpose of a reverse stock split? |
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Definition
- Eliminates minority shareholders (stock of those w/ only 1 share become fractions which typically may be eliminated for cash).
- For public companies, it can produce a share price above the minimum required by some stock exchanges to continue to list stock.
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Term
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Definition
The amount paid for a stock
BUT this number can change based on different events including payment of a stock dividend
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Term
| T or F: a shareholders income from cash dividends is taxable. |
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Definition
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Term
| "Other Comprehesive Income" |
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Definition
| Insignificant events that affect owner's equity |
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Term
| What is the term for the accounting transaction where a company gets cash and gives away shares? |
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Definition
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Term
What is Market Capitalization (Cap)?
How is it calculated? |
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Definition
The total dollar market value of all of the companies outstanding shares.
Calculated by multiplying a company’s shares outstanding by the current market price of one share.
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Term
| Does the highest Market Cap mean the highest equity? |
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Definition
| No, it means the market for the share price is the highest. |
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Term
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Definition
| Instruments or investment securities that have elements of equity AND debt. Treated wholly as liabilities. |
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Term
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Definition
| When a company offers a 2% discount if a customer pays within 10 days, otherwise the total amount is due within 30 days |
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Term
| T or F: a shareholders income from stock dividends is taxable. |
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Definition
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Term
| Why is it that issued stock is not always the same as outstanding stock? |
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Definition
| Because when entities buy back their stocks they are issued, but no longer outstanding. |
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Term
What is Capitalization (Cap) Rate?
How is it calculated? |
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Definition
A ratio used to estimate the value of income producing properties.
The net operating income divided by the sales price or value of a property (expressed as a percentage).
Note: When cap rates are low, prices are high (and vise versa)
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Term
| What are the three types of capital accounts? |
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Definition
| Reflecting the portion of owner's equity that is (1) Contributed to the entity directly by owners, (2) generated by operations over time, and (3) subject to adjustment due to events that contribute to "other comprehensive income" |
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Term
For businesses that have issued stock having a par value, what two capital accounts are needed to reflect shareholder contributions to capital?
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Definition
(1) Capital stock account, and (2) Additional paid-in-capital account
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Term
| What is a Capital Account (for businesses that have issued stocks w/ par value)? |
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Definition
| An account that reflects the # of stocks outstanding times the par value of the shares. |
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Term
| What is an Additional Paid-In-Capital Account? |
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Definition
| An accuont that reflects the amount paid by shareholders to the corporation for stock over and above the par value of the shares. |
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Term
For businesses that issue stock w/o par value what two approaches can be used to account for the issuance of stock?
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Definition
| (1) Stated capital account, (2) Additional paid-in capital account |
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