Kế toán, kiểm toán - Chapter 13: Planning equity financing

Chapter 13Planning Equity FinancingCopyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin13-*What is the Risk of Debt Financing?Financial riskThe chance that the company cannot meet its debt obligations as they become dueMeasuresDebt to equity ratio (relationship of total debt to total owners’ equity)Times interest earned ratio (relationship of income before interest and taxes to interest expense)13-*What is the Reward of Debt Financing?Financial leverageThe opportunity to generate a return that is greater than the cost of borrowingMeasureReturn on equity (relationship of net income to total owners’ equity)13-*What are the Advantages of Sole Proprietorships and Partnerships?Ease of formationIncome taxes only at the individual’s levelMore owner involvement13-*What are the Disadvantages of Sole Proprietorships and Partnerships?Unlimited liabilityLimited ability to raise capitalMutual agency (partnerships)13-*What are the Advantages and Disadvantages of Corporations?Limited liabilityUnlimited lifeAbility to raise capitalRegulatory requirementsDouble taxationAdvantagesDisadvantages13-*How do Partnerships Determine how Profits /Losses will be Allocated to the Partners?Fixed ratioRatio of capital balancesSalary allowancesInterest allowancesCombination13-*What are the Types of Stock Issued by Corporations?Common stockResidual interestOwners of the companyPreferred stockSome rights of ownershipPreference over common stock (but not debt) in dividends and/or liquidation13-*What are the Most Common Preferences given to Preferred Stock?CumulativeDividend accumulateParticipatingDividend in excess of stated rateCallableCorporation optionConvertibleStockholder optionRedeemableStockholder option13-*What are the Different “Numbers of Shares” Concerning Stock?AuthorizedMaximum number of shares that can be issuedIssuedNumber of shares distributed to stockholders (not retired)OutstandingNumber of shares currently held by stockholders 13-*What is Treasury Stock?Treasury stock is previously issued stock that has been repurchased by the corporation (but not retired).Therefore, the number of shares outstanding is equal to the number of shares issued less the number of shares of treasury stock.13-*What are the “Values” Associated with Stock?ParArbitrary amount used to determine legal capital, stated in the charterStatedArbitrary amount used to determine legal capital, not stated in the charterMarketCurrent selling price13-*What Types of Dividends are Distributed?CashChecks written and payable to stockholdersStockAdditional shares of stock distributed to stockholdersPropertyAssets other than cash distributed to stockholders13-*What is the Difference Between a Stock Dividend and a Stock Split?Stock DividendAdditional shares of stock are distributed to stockholdersStock SplitOld shares are turned in by stockholders and new shares (more) with a different (lower) par value are issued in returnReverse Stock SplitOld shares are turned in by stockholders and new shares (less) with a different (higher) par value are issued in return13-*What are the 3 Dates Associated with Dividends?DeclarationBoard of directors determines the amount of the dividend and the date of record and paymentRecordIndividual stock ownership is determinedPaymentDividend is distributed