Question

LO11-4, LO11-5, LO11-6, LO11-7, LO11-8, LO11-9 EXERCISE 11.2 Accounting Terminology Listed are 12 technical accounting terms discussed in this chapter. Par value Board of directors Double taxation Book value Paid-in capital Dividends in arrears LO11-4 EXERC Analys Equity

Answer 1

a. Major disadvantage of the corporate form of organization- Double taxation

The double taxation happens as the company pays tax on its income & again shareholders may have to pay tax on dividends received by them

b.From investors' point of view, the most important values associated with capital stock- Dividends in arrears

Dividend in arrears mean the dividend which is not paid to cumulative preference stock holders as and when they were due. This may indicate the company's inability to pay dividends in future also.

c. Cash available for distribution to stakeholders.- None

It is calculated by finding the funds from operations minus the recurring capital expenditure

d. The class of capital stock that normally has the most voting power. - Common stock

Common stock has the voting rights b whereas preference share holders generally do not have voting rights.

e. A distribution of assets that may be made in future years to the holders of common stock.- None

Company may distribute dividends or assets to its stakeholders which becomes taxable in the hands of stakeholders. The company might distribute the assets in the event of liquidation.

f. A corporation whose shares are traded on an organized stock exchange. - publicly owned corporation

The stocks of publicly owned corporation are traded on stock exchange whereas the stocks of privately owned corporation are sold to few willing investors.

g. Equity arising from investments by owners- Paid-in-capital

Paid-in capital is the amount paid by investors towards entity stock.

h. The element of stockholders' equity that is increased by net income. - Retained earnings

Retained earnings are the element of stakeholders' equity which is the company profit after distribution to stakeholders.

i. Total assets divided by number of common shares outstanding. - None

Net asset value is the term used to determine the portion of asset attributable to each shareholder in the event of liquidation. The formula to calculate is "Net assets divided by number of shares outstanding".

j. The class of stock for which market price normally rises as interest rates increase. - Preferred stock