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    Accounting for Corporations

    There are three general legal forms that a business can take: the sole proprietorship, the partnership and the corporation. Unlike proprietorships and partnerships, corporations are considered to be a separate legal entity distinct from its owners.

    The main advantage of the corporate form is that the owners of a corporation have limited liability. Limited liability means that if the corporation is sued or goes bankrupt, the corporation’s owners cannot lose any more than what they invested. They may lose their investment, but creditors cannot come after the owner’s own assets to settle the corporation’s obligations.  It is also very rare that plaintiff’s are able to sue the owner’s of the corporation for injury resulting from the corporation’s actions.

    Another general advantage is that corporations, by issuing shares, have better access to markets to raise capital. This is especially true where the corporation’s shares are publically traded (but this need not be the case – lots of corporations are privately owned).  Corporations that are publically traded are required by law to follow U.S. GAAP as well as the SEC’s rules when preparing their financial statements.

    The main disadvantage of the corporate form is that corporations are required to pay taxes as a separate legal entity. This means that the profit of a corporation is taxed when it is earned, and is also taxed when it is distributed to shareholders as dividends. This creates a double taxation. According to the IRS, a corporation cannot deduct dividends from income and shareholders cannot deduct corporate losses.1

    Small business corporations or an S-corporation is a corporation that elects to pass its corporate income, losses, deductions and credits through to their shareholders for federal tax returns. It is the exception to the rule that corporations are taxed as a separate legal entity and; as a result, there are a number of limitations on the types of corporations that can register as an S-corporation.2 


    References:

    1. IRS "S Corporations." Retrived from: http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/S-Corporations
    2. IRS. "Corporations." Retrieved from: http://www.irs.gov/Businesses/Small-Businesses-%26-Self-Employed/Corporations

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    BrainMass Categories within Accounting for Corporations

    Issuing Shares

    Solutions: 43

    Like getting a loan, or issuing bonds (debt), issuing shares is a way that corporations can raise cash to finance the operations of their business.

    Repurchasing Shares

    Solutions: 0

    Share buybacks are a way to return cash to shareholders, decrease the number of shares outstanding, and improve share-based performance ratios such as earnings per share.

    Cash Dividends

    Solutions: 0

    Corporations pay cash dividends to return cash to distribute earnings to shareholders. When a corporation pays dividends in the form of cash (or other assets - but not stock) the shareholders' equity of the firm decreases. Corporations are not allowed to distribute dividends in excess of retained earnings.

    Stock Dividends and Stock Splits

    Solutions: 182

    A stock dividend is a dividend paid by the distribution of additional shares to existing shareholders rather than paying cash. A stock split occurs when a corporation divides its existing shares into multiple shares. A stock split is conceptually the same as a stock dividend but is treated differently by U.S. GAAP.

    Stock-Based Compensation

    Solutions: 2

    Stock-based compensation such as the direct award of stock or the granting of compensatory stock options is a way for corporations to compensate employees with ownership of the corporation in lieu of salary or bonuses.

    BrainMass Solutions Available for Instant Download

    Lightfoot Inc: Dividends

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    Accounting Entries for Stockholders Equity Section

    The Primo Corporation began operations two years ago and was authorized to issue 500,000 shares of 6%, $100 par value preferred stock and 2,000,000 shares of $5 par value common stock.The following transactions and events were completed during 2014. (Note: at the beginning of 2014 there are 1,000 shares of preferred stock and 50

    Stock Dividend, Stock-Split, Treasury Stock

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    Preferred dividends, participating, noncumulative, cumulative

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    When a company purchases shares of its own common stock

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    Dividend and Non-Dividend Stock Valuation

    One primary reason individuals invest in stocks is to receive returns on their investment in the form of dividends. Not all companies opt to offer dividends to their investors, however. In their article The Dividend Discount Model in the Long-Run: A Clinical Study, the authors discuss the importance of three variables that affec

    Total Stock Return with No Dividends Paid

    Books Brothers stock was priced at $15 per share two years ago. The stock sold for $13 last year and now it sells for $18. What was the total return for owning Books Brothers stock during the most recent year? Assume that no dividends were paid and round to the nearest percent.

    Annual Dividend and Market Rate of Return

    Northern Gas recently paid a $2.80 annual dividend on its common stock. This dividend increases at an average rate of 3.8 percent per year. The stock is currently selling for $26.91 a share. What is the market rate of return?

    Dividends per Shares and Payout Ratio

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    The Common Stock Dividends

    My team is planning to invest $500,000 in dividends. If we have a total of 67,815 total shares, the dividend per share will be $7.37. Am I right? Don't you think that $7.37 per share is too much? or Should we invest only 300,000? Please see attachment with the current figure we have for this quarter. Thank you.

    Common and preferred stock, issuances dividends Permabilt Corp.

    Permabilt Corp. was incorporated on January 1, 2010, and issued the following stock for cash: 3,600,000 shares of no-par common stock were authorized; 1,050,000 shares were issued on January 1, 2010, at $46 per share. 1,200,000 shares of $100 par value, 10.5% cumulative, preferred stock were authorized, and 420,000 shares we

    Dividends in the market

    Problem 1: Midnight Hour Inc. has declared a $5.10 per-share dividend. Suppose capital gains are not taxed, but dividends are taxed at 15%. New IRS regulations require that taxes be withheld at the time the dividend is paid. Midnight Hour sells for $83 per share and the stock is about to go ex-dividend. What do you think t

    Dividend Payout and Shareholder Wealth

    See the attached file. EBIT-EPS and Capital Structure Percy's, Inc. is considering the purchase of a small company which supplies the firm with a major component used to manufacture its main product. The purchase would be financed by the sale of common stock or a bond issue. The

    Issued Shares and Outstanding Shares

    The balance sheet caption for common stock is the following: Common stock without par value, 2,000,000 shares authorized, 400,000 shares issued, and 360,000 shares outstanding; $2,600,000 a) Calculate the average price at which the shares were issued; Price= $ b) If a cash dividend of $0.60 per share were declared,

    Dividend Hypothesis/Theory

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    Dividend Smoothing and Adjustment Rate

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    Debt versus Equity Financing (Interest versus Dividends)

    Aside from taxes, another important difference between debt and equity financing is that debt payments must be made to avoid default, while firms have no similar obligation to pay dividends. How do debt and equity financing affect a firm's tax situation differently? Why do debt payments have to be made but dividends do not have

    Capital Valuation Methods

    1. A stock had a price at the beginning of the year of $100 and was selling for $102 at the end of the year. If the total shareholder returns were 5 percent, then the cash dividend per share must have been what? 2. A firm with a 50 percent debt ratio faces a 40 percent tax rate and pays a 10 percent interest rate on its debt.

    Calculating Dividends

    See attached for the proper table. The shareholders' equity of Kramer Industries includes the data shown below. During 2012, cash dividends of $150 million where declared. Dividends were not declared in 2010 or 2011. $ in millions Common Stock $200 Paid-in capital excess of par, common 800 Preferred stock, 10%, nonpart

    Stock current market value

    Fasco Industries just paid a dividend of D0 = $1.45. Analysts expect the company's dividend to grow by 28% this year, by 11% in the second, and at a constant rate of 6% in the third year and thereafter. The required return on this low-risk stock is 11.00%. How do you estimate, and from your calculations, what is the best estimat

    Companies Deciding Whether or Not to Pay Dividends

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    Explanation of Stock Dividends

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    Fashonista Skincare Computing Dividends - Preferred Common

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    Value of stock that pays the first dividend 20 years later

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    Calculating Dividends Per Share

    Wings Inc., a software development firm, has stock outstanding as follows: 25,000 shares of cumulative 1%, preferred stock of $40 par, and 50,000 shares of $120 par common. During its first four years of operations, the following amounts were distributed as dividends: first year, $7,500; second year, $10,500; third year, $25,000

    Fashonista Skincare

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