Match terms with their definitions (LO10-1) E10-1 Match (by letter) the followin

Question

Match terms with their definitions (LO10-1) E10-1 Match (by letter) the following terms with their definitions. Each letter is used only once. Terms 1. Limited liability company. 2. Limited liability. 3. Articles of incorporation. 4. Organization chart. 5. S corporation. 6. Publicly held corporation. 7. Initial public offering. 8. Double taxation. Definitions: a. Allows for legal treatment as a corporation, but tax treatment as a partnership. b. Has stock traded on a stock exchange such as the New York Stock Exchange (NYSE). c. The first time a corporation issues stock to the public. d. Describes (a) the nature of the firm's business activities, (b) the shares to be issued, and (c) the composition of the initial board of directors. e. Shareholders can lose no more than the amount they invest in the company. f. Corporate earnings are taxed twice-at the corporate level and individual shareholder level. g. Like an S corporation, but there are no limitations on the number of owners as in an S corporation.h. Traces the line of authority within the corporation. Explain the meaning of terms used in stockholders' equity (LO10-2, 10-3, 10-4) E10-2 Your friend, Jonathon Fain, is an engineering major with an entrepreneurial spirit. He wants to start his own corporation and needs your accounting expertise. He has no idea what the following terms mean: (1) authorized stock, (2) issued stock, (3) outstanding stock, (4) preferred stock, and (5) treasury stock. Required: Write a note to Jonathon carefully explaining what each term means and how they are different from each other.

Explanation / Answer

E10-1:

a. S corporation

b. Publicly held corporation

c. Initial Public Offering

d. Articles of Incorporation

e. Limited liability

f. Double taxation

g. Limited Liability Company

h. Organization chart

E-10-2

Authorized stock: When a company is formed, it authorizes a fixed number of shares of stock in the company. The stock is assigned a par value.

Issued stock: The portion of the number of shares issued by the company that were authorized at the time it was created.

Outstanding stock: The number of shares actually trading in the market.

Preferred stock: A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares generally have a dividend that must be paid out before dividends to common shareholders, and the shares usually do not carry voting rights.

Treasury stock: Any shares of issued stock that the company repurchases. A company may buy back its own shares for any of these reasons:

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