Paid in Capital

13 important questions on Paid in Capital

Four advantages of a corporation

Professional management
Limited Liability
Ownership can be easily transferred
Indefinite life

Four disadvantages of a corporation

Double taxation
Complex and expensive to start
More regulation
Managers and owners are separated

What is a major challenge for a publicly held corporation?

They are answerable to the SEC and independent auditors for the quality of their financial reports.
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What are two common ways to handle a corporation's organization costs?

1.  Expense them right away
2.  Amortize over five years

Which corporate manager is most directly in control of the cash?

The treasurer

Who helps a company manage the issuance and recordkeeping of stocks?

A stock registrar (generally an independent trust company or bank)

What is the term for the middleman that helps a company issue a large block of shares by purchasing and reselling them?

An underwriter

What are the names for the accounts credited for funds invested in company stock?

Capital stock (always at par) and Paid-in Capital in Excess of Par

What is it called when preferred stock has a right to dividends in arrears when they have not been paid in previous years?

Cumulative

How are dividends in arrears treated in financial reports?

They are *not* a liability, but must be disclosed in the notes.

How is a stock split recorded?

As a memorandum, not an entry.  No cash is involved and there is no reason to change any account.

What is it called when a company buys its stock, but does not retire it?

Treasury stock

What if treasury stock is resold at a gain?

Debit cash, credit Treasury Stock and Paid in Capital, Treasury Stock.  This same account may be debited for a loss.

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