Corporations: Organization, Share
Transactions, and Equity
Chapter Number Chapter 12
Corporations: Organization, Share Transactions, and Equity 1
, 📖 Table of Contents
Outline
12.1 The Corporate Form of Organization
Forming a Corporation
Shareholder Rights
Share Issue Considerations
Authorized Shares
Issuance of Shares
Market Price of Shares
Par and No-Par Value Shares
Corporate Capital
Share Capital
Retained Earnings
12.2 Accounting for Share Transactions
Accounting for Ordinary Shares
Issuing Par Value Ordinary Shares for Cash
Issuing No-Par Ordinary Shares for Cash
Issuing Ordinary Shares for Services or Non-Cash Assets
Accounting for Preference Shares
Accounting for Treasury Shares
Purchase of Treasury Shares
Disposal of Treasury Shares
12.3 Dividends and Splits
Accounting for Cash Dividends
Entries for Cash Dividends
Dividend Preferences
Cumulative Dividend
Allocating Cash Dividends between Preference and Ordinary Shares
Accounting for Share Dividends
Entries for Share Dividends
Effects of Share Dividends
Accounting for Share Splits
12.4 Reporting and Analyzing Equity
Retained Earnings
Presentation of Statement of Financial Position
Analysis
12.5 Statement of Changes in Equity
12.6 Book Value—Another per Share Amount
Book Value per Share
EXAMPLE
12.1 The Corporate Form of Organization
Two common ways to classify corporations are by:
purpose
Corporations: Organization, Share Transactions, and Equity 2
, A corporation may be organized for the purpose of making a profit, or it may be not-for-
profit.
ownership
Classification by ownership differentiates publicly held and privately held corporations.
A publicly held corporation may have thousands of shareholders. Its shares are
regularly traded on a national securities exchange such as the São Paùlo Stock
Exchange (BRA).
a privately held corporation usually has only a few shareholders, and does not offer its
shares for sale to the general public
Advantages and disadvantages of a corporation (vs proprietorship and a partnership)
Forming a Corporation
1. file an application with the appropriate governmental agency in the jurisdiction in which
incorporation is desired
a. the name and purpose of the corporation
b. the types and number of shares that are authorized to be issued
c. the names of the individuals that formed the company
d. the number of shares that these individuals agreed to purchase
2. government approves the application, it grants a charter
3. the corporation establishes by-laws
a. The by-laws establish the internal rules and procedures for conducting the affairs of the
corporation
b. Corporations engaged in commerce outside their state or country must also obtain a
license from each of those governments
4. Costs incurred in the formation of a corporation are called organization costs
a. These costs include legal and government fees, and promotional expenditures involved in
the organization of the business
Corporations: Organization, Share Transactions, and Equity 3
Transactions, and Equity
Chapter Number Chapter 12
Corporations: Organization, Share Transactions, and Equity 1
, 📖 Table of Contents
Outline
12.1 The Corporate Form of Organization
Forming a Corporation
Shareholder Rights
Share Issue Considerations
Authorized Shares
Issuance of Shares
Market Price of Shares
Par and No-Par Value Shares
Corporate Capital
Share Capital
Retained Earnings
12.2 Accounting for Share Transactions
Accounting for Ordinary Shares
Issuing Par Value Ordinary Shares for Cash
Issuing No-Par Ordinary Shares for Cash
Issuing Ordinary Shares for Services or Non-Cash Assets
Accounting for Preference Shares
Accounting for Treasury Shares
Purchase of Treasury Shares
Disposal of Treasury Shares
12.3 Dividends and Splits
Accounting for Cash Dividends
Entries for Cash Dividends
Dividend Preferences
Cumulative Dividend
Allocating Cash Dividends between Preference and Ordinary Shares
Accounting for Share Dividends
Entries for Share Dividends
Effects of Share Dividends
Accounting for Share Splits
12.4 Reporting and Analyzing Equity
Retained Earnings
Presentation of Statement of Financial Position
Analysis
12.5 Statement of Changes in Equity
12.6 Book Value—Another per Share Amount
Book Value per Share
EXAMPLE
12.1 The Corporate Form of Organization
Two common ways to classify corporations are by:
purpose
Corporations: Organization, Share Transactions, and Equity 2
, A corporation may be organized for the purpose of making a profit, or it may be not-for-
profit.
ownership
Classification by ownership differentiates publicly held and privately held corporations.
A publicly held corporation may have thousands of shareholders. Its shares are
regularly traded on a national securities exchange such as the São Paùlo Stock
Exchange (BRA).
a privately held corporation usually has only a few shareholders, and does not offer its
shares for sale to the general public
Advantages and disadvantages of a corporation (vs proprietorship and a partnership)
Forming a Corporation
1. file an application with the appropriate governmental agency in the jurisdiction in which
incorporation is desired
a. the name and purpose of the corporation
b. the types and number of shares that are authorized to be issued
c. the names of the individuals that formed the company
d. the number of shares that these individuals agreed to purchase
2. government approves the application, it grants a charter
3. the corporation establishes by-laws
a. The by-laws establish the internal rules and procedures for conducting the affairs of the
corporation
b. Corporations engaged in commerce outside their state or country must also obtain a
license from each of those governments
4. Costs incurred in the formation of a corporation are called organization costs
a. These costs include legal and government fees, and promotional expenditures involved in
the organization of the business
Corporations: Organization, Share Transactions, and Equity 3
