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Unique characteristics of corporations:-Separate legal entity-Number of owners-no personal liability of the owner(s)-Lack of mutual agency-Indefinite life-Taxation-Capital accumulation
A stockholder has four basic rights:1. Vote―Each share of basic ownership in the corporation carries one vote. 2. Dividends―Stockholders receive a proportionate part of any dividend declared and paid. 3. Liquidation―Stockholders receive their proportionate share of any assets remaining after liquidation. 4. Preemptive right―Stockholders have a right to maintain their proportional ownership.
Common stock represents basic ownership.Preferred stock gives owners certain advantages over common stock.Stock may carry a par value or may be no-par stock. Stated value stock is no-par stock that has been assigned an amount similar to par value.
A corporation"s equity is called stockholders" equity. The two basic sources of stockholders" equity are: -Paid-in capital represents amounts received from stockholders for stock.-Retained earnings is equity earned by profitable operations that is not distributed to stockholders.
Companies raise capital by issuing stock. A company can sell its stock directly to stockholders, or it can use the services of an underwriter. Stocks of public companies are bought and sold on a stock exchange, such as the New York Stock Exchange (NYSE) or NASDAQ Stock Market. The issue price is the amount a corporation receives from issuing stock.
is a company"s stock that it has previously issued and later reacquired. Companies purchase treasury stock to:-Increase net assets by buying low and selling high-Support the company"s stock price-Avoid a takeover-Reward valued employees with stock
The basics of accounting for treasury stock:-The Treasury Stock account has a normal debit balance. Treasury Stock is a contra equity account.-Treasury stock is recorded at cost, without reference to par value.-The Treasury Stock account is reported beneath Retained Earnings on the balance sheet as a reduction to equity.
How many common shares are outstanding on April 4?The 23,000 common shares previously issued minus 300 treasury shares equals 22,700 outstanding common shares.
A corporation may retire its stock by canceling the stock certificates. Retired stock cannot be reissued.To repurchase previously issued stock for retirement, we debit the stock accounts and credit Cash. -This removes the retired stock from the company"s books.-It also reduces total assets and total stockholders" equity.
A profitable corporation may make distributions to stockholders in the form of dividends. Dividends can be paid in the form of cash, stock, or other property. Legal capital refers to the portion of stockholders" equity that cannot be used for dividends.
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declaration date-The board of directors announces the intention to pay the dividend, and a liability is created. date of record-This is the date the corporation records the stockholders that will receive dividend checks. payment date-This is the date the dividend is paid to the stockholders.
The cash dividend rate on preferred stock is often expressed as a percentage of the preferred stock par value, such as 6%. Sometimes, cash dividends on preferred stock are expressed as a flat dollar amount per share, such as $3 per share.Greg"s Games, Inc. has 1,000 outstanding shares of 6%, $50 par value preferred stock. The dividend is computed as follows:preferred dividend = outstanding shars x par value x preferred dividend rate=1000 x 50 x 6%=3000
―Preferred stock whose owners must receive all dividends in arrears plus the current year dividends before the corporation pays dividends to the common stockholders