1. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 11 Objectives 1.Define accounting terms related to corporate accounting. 2.Identify accounting concepts and practices related to corporate accounting. 3.Journalize transactions related to starting a corporation. 1 LESSON 11-1

2. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Chapter 11 Objectives 4.Journalized transactions related to stock subscriptions. 5.Prepare a balance sheet for a newly formed corporation. 6.Calculate dividends for a corp. 7.Journalize transactions of a corporation related to declaring and paying dividends. 2 LESSON 11-1

3. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 11-1 Starting a Corporation

4. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Terms Corporation—an organization with the legal rights of a person and that may be owned by many persons. Share of Stock—each unit of ownership in a corporation. Generally get one vote per share Stockholder—an owner of one or more stocks. The more stocks the more votes. 4 LESSON 11-1

5. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Terms Retained Earnings—Net income retained (held back) for business expansion or improvements. Not yet distributed to the stockholders Dividends—the portion of the net income from the corporation that is given or rewarded to stockholders as a “return on investment” (ROI). 5 LESSON 11-1

6. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Terms Board of Directors—group of persons elected by stockholders to manage a corporation. Dividends can be distributed to stockholders ONLY by a formal action by the board. 1.Determines corporate policies 2.Selects officers to supervise the day-to-day management of the corporation 6 LESSON 11-1

7. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Terms Articles of Incorporation—a written application requesting permission to form a corporation. Charter—When the articles or incorporation are approved a corporation now exists. Now called a Charter OR Certificate of Incorporation 7 LESSON 11-1

8. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON 11-1 3 1.Nature of business. 2.Types of stock authorized. 3.Initial directors. ARTICLES OF INCORPORATION page 315 1 2

9. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 9 LESSON 11-1 1.Names of incorporators. 2.Signatures of incorporators. ARTICLES OF INCORPORATION page 316 1 2

10. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Three (3) Rights of Stockholders 1.To vote at stockholders’ meetings unless an exception is made for holders of a particular kind of stock (preferred) 2.To share in a corporation’s earnings 3.To share in the distribution of the assets of the corporation if it ceases operations and sells all its assets. 10 LESSON 11-1

11. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 11 LESSON 11-1 STOCK CERTIFICATES page 317

12. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Two Types of Capital Stock C ommon Stock—stock that does NOT give stockholders any special preferences; simply common. Preferred Stock—stock that give stockholders preference in EARNINGS and other rights Generally do NOT have voting rights Receives dividends BEFORE common Stated as % of par value or amount per share 12 LESSON 11-1

13. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Value of Stock Par Value—stock with an assigned value that is PRINTED on the stock certificate Par value stock—share of stock that has an authorized value printed on stock 13 LESSON 11-1

14. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Value of Stock NO-par-value stock—share of stock that has NO authorized value Printed on the certificate. Some states require this stock to be assigned a stated or specific value Stated Value Stock—no-par-value stock that is “assigned” a value by a corporation but NOT Printed on stock 14 LESSON 11-1

15. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 15 LESSON 11-1 1.Write the date. 2.Enter the account title. 3.Record the receipt numbers. 4.Write the credit amount. 5.Write the debit amount. TRANSACTIONS INCURRED WHEN STARTING A CORPORATION page 319 12345 January 5. Received cash from six incorporators for 30,000 shares of $10.00 stated-value common stock, $300,000.00. Receipt Nos. 1-6

16. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning ORGANIZATION COSTS OF A CORPORATION 16 LESSON 11-1 page 320 January 5. Paid cash to Amy Thacker as reimbursement for organization costs, $2,400.00. Check No. 1 Organization Costs—fees and other expenses of organizing a corporation. Cost of getting all documents in order, etc. 1.An incorporation fee paid to the state when the articles of incorporation are submitted 2.Attorney fees for legal services during process of incorporation 3.Other incidental expenses incurred prior to receiving charter

17. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 17 LESSON 11-1 TERMS REVIEW corporation board of directors articles of incorporation charter common stock preferred stock stock certificate par value par-value stock no-par-value stock stated-value stock organization costs page 322

18. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Audit Your Understanding 1.What are the responsibilities of a corporation’s board of directors? 2.What three basic rights do stockholder’s usually have? 3.What two basic kinds of stock may a corporation issue? 18 LESSON 11-1

19. CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Audit Your Understanding 4.In place of a general ledger capital account for each owner, how does a corporation show stock ownership? 5.What accounts are affected, and how, when a corporation initially sells and issues common stock? 6.What 3 items are in included in the organization costs of a corporation? 19 LESSON 11-1