PPT_13

Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada, Ltd.
Common Shares: Issuing Shares
Chapter 13
Corporations: Organization and Share Capital Transactions
Prepared by: Debbie Musil Kwantlen Polytechnic University
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada,ห้องสมุดไป่ตู้Ltd.
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Government regulations
• Specific laws that govern operations of corporations
Distribution of Profit
• Via dividends to shareholders
Income tax
• Taxed as a separate entity
• Issued directly to investors or through an investment dealer • First public sale is called an initial public offering (IPO)
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada, Ltd.
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Legal capital
• Share capital is legal capital and cannot be distributed to shareholders • Retained earnings are earned capital and can be distributed as dividends
Common Shares: Reacquisition of Shares
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Companies can reacquire their shares to:
• • • • Increase trading on securities markets Increase earnings per share Buyout hostile shareholders Have shares available for compensation or other uses • Comply with share ownership restrictions
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Statement presentation and analysis
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada, Ltd.
By-laws: internal rules and policies By• Organization costs:
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• Costs of forming a corporation • Must be expensed
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada, Ltd.
Transferable ownership rights
• Shares may be bought and sold • No effect on operating activities of corporation
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Ability to acquire capital
• Can raise capital by issuing shares • May be difficult for closely-held corporations closelyWeygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada, Ltd.
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Common shares
• Issuing shares for cash, services or noncash assets • Reacquisition of shares
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Preferred shares
• Dividend preference • Convertible, redeemable and retractable features • Liquidation preference
• Purpose: for profit or not-for-profit not-for• Ownership:
• Publicly held: shares are traded on an organized securities market • Privately held: shares are held by a few individuals and are not traded
Share Issue Considerations
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Authorized share capital
• Number of shares company is allowed to sell • Many companies have unlimited number of shares
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Issue of shares
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Separate legal existence from its owners
• Acts under its own name • Owners do not bind the corporation
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Limited liability of shareholders
• Limited to the amount of their investment
Corporations: Organization and Share Capital Transactions
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The corporate form of organization
• • • • Characteristics Forming a corporation Ownership rights of shareholders Share issue considerations
Dr. Service or asset (e.g. Legal Fees Expense) Cr. Common shares
• If fair value of goods/services not measurable, use fair value of shares given up
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada, Ltd.
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• Provide information such as :
• • • • Name and purpose of company Amounts and kinds of share capital Names and addresses of incorporators Location of corporation’s head office
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada, Ltd.
Forming a Corporation
Can incorporate federally or provincially • Done by filing articles of incorporation
Characteristics of a Corporation 2
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Continuous and indefinite life
• Unaffected by change in ownership
Corporation management
• Shareholders manage through elected board of directors, who select corporation management
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Fifth Canadian Edition © 2010 John Wiley & Sons Canada, Ltd.
Characteristics of a Corporation