1. Corporations and stock
Chapter 20

2. (A) Advantages and disadvantages
Limited liability of owners
Transferable ownership units
Ease of raising capital
No mutual agency
Unlimited life
Taxation of earnings
Government regulations

3. (b) Types of stock
Authorized stock – what a corporation may issue (charter states)
Issued stock – what has been issued and sold
Treasury stock – stock bought back by the company
Outstanding stock – the shares in the hands of stockholders

4. (c) Stock values
Par value – the amount printed on the stock certificate
Important for accounting purposes, but otherwise insignificant
Market value – what the stock is worth (constantly changing)
Common stock – rights on page 788
Preferred stock – superior to common stock (without the rights)

5. (d) Stock transactions
Issuing stock at par value
Cash 50,000
Common stock 50,000
Issuing stock at a premium (price above par value)
Cash 60,000
Paid-in capital in excess of par-
Common stock 10,000

6. (d) Stock transactions
Issuing stock with a stated value
Cash 60,000
Common stock 50,000
Paid-in capital in excess of stated value-
Common stock 10,000
Issuing no-par stock (simpler)
Common stock 60,000

7. (d) Stock transactions
Issuing stock for other assets (buy a truck with stock)
Truck 30,000
Common stock 25,000
Paid-in capital in excess of par-
Common stock 5,000
Capital stock subscriptions (page 793)
Buying back stock (treasury stock – 30,000 shares, par value $5, market value $6)
Common treasury stock 60,000
Cash 60,000

8. (e) stockholders’ equity section
See pages

9. assignments Read pages 783-802 Exercises 2A,2B,3A Problems 6A,7A