1) Closely held companies escape bureaucratic costs

2) Closely held companies do not share financial statements with the public

3) Public companies listed on stock exchanges must have audits and follow strict GAAP to achieve stability and goals

1) Common shares - voting share power, paid after preferred shareholders get paid

2) Preferred shares - special privileges, paid before common shareholders get paid

1) Cash - any costs are recorded to the asset account called organization costs and are depreciated

2) Non-cash (property dividend) - gotta get fair value of what you're giving or the fair value of the stocks it is worth

No, we can't tell which one is better due to many factors such as taxable income not being recorded when issuing dividends.

No it is not good to do both at the same time, if you issue bonds, issuing shares becomes risky

It gives shareholders additional shares (ex// 5% stock dividends = 1 extra stock for every 20 you have)

It results in a debit to retained earnings and a credit to the capital accounts

1) It is legal

2) It is financially expedient

1) Earnings are not corresponded with cash

2) Restricting dividends in prosperous years may permit continued dividends in poor years (Dividends are usually limited to a certain amount each period)

3) Funds needed for expansion possibly

4) Reducing the amount of borrowing seems smart

Major Advantages to Incorporation (3)

Major Disadvantages to Incorporation (2)

1) Limited liability

2) Uses shares

3) Easy transfer of ownership

1) Double taxation

2) More gov. regulations and supervision

*Does not require a journal entry

Is used when additional shares are issued, happens when the market price of a stock falls.

1) Safeguard its assets

2) Check the accuracy and reliability of financial statements and accounting records

3) Promote operational efficiency

4) Encourage sticking to prescribed mgmt. policies  

Why is Control Necessary?

Owner's Control Functions When Working Alone (3)

It is to detect and reduce errors.

When there are additional employees other then the owner those employees need to know all policies and need to follow said policies.

The owner has, when working alone,

1) Performs all functions

2) Has access to all information

3) Has no significant accountability relationships

1) Establish control criteria by mgmt.

2) A way of communicating criteria to employees

3) Methods to train employees in carrying out control procedures

4) A method of monitoring employee behaviour

5) Mechanism for structured review to adapt and change

6) periodic formal audits

7) cost-benefit criteria being applied

1) AcSB responsible for making accounting standards CAN

2) AcSOC discussed strategic direction with AcSB

3) FASB try to harmonize standards by working w/ AcSOC

4) ISAB do the same thing as FASB

5) EIC provides guidance on emerging issues

1) Relevance

2) Understandability

3) Reliability

4) Completeness

5) Objectivity

6) Timeliness

7) Comparability

1) Systematic body of theory

2) Authority over subject matter

3) Community sanction - recognition

4) Self-regulation

5) Code of ethical conduct

6) Objectivity - unbiased

*It is a type of audit

1) Set of criteria

2) Requires an auditor

Compared against other companies's factor or against other time periods.

(ex// sales in one period to another, growth rate compared to another company's growth rate)

*Used in quantitative analysis

Horizontal involves analyzing items and comparing their growth rates to different periods

Vertical involves analyzing important items and comparing them to each other (divide one by the other) in order to find unusual relationships (ex// income statement data as a percentage of sales)

1) Look at the important items (total assets, current liabilities)

2) Look for individual accounts with major changes

3) Compare the accounts with major changes to other accounts or to different periods

Interfirm is comparing trend analysis to different companies

Intrafirm is making a trend analysis to compare the changes in our company

1) Return on assets (productivity ratio = operating income / avg. total assets (before deducting tax and interest expense = operating income))

2) Return on common shareholders' equity =

(net income - preferred dividend requirements) / (average common shareholders equity)

3) Return on sales = net income / net sales

= Net income - Preferred dividend requirements

Common shares outstanding

= Market price per common share

Earnings per common share

= Common dividends per share

Market price per share

= Common dividends per share

Earnings per common share

= Common shareholders' equity

Total assets

= Operating income

Annual bond interest

=                            Operating income                             

(Annual bond interest + preferred dividends requirement)

=        Sales         

   Working capital      (= Current assets - current liabilities)

=        Current assets     

      Current liabilities

= (Cash + temporary investments + receivables)

Current liabilities

= Cost of goods sold (COGs)

Avg. Inventory

= Trade accounts receivable x 365

Sales

1) Different accounting methods

2) Different size, products

3) Different operations