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Accounting 2 Dersi 6. Ünite Sorularla Öğrenelim

Shareholder’S Equity: Paid-İn Capital

1. Soru

What are different forms of entities?

Cevap

Different forms of entities can be classified as sole proprietorships, partnerships, and corporations.


2. Soru

What are the characteristics of proprietorship?

Cevap

The expiration of a proprietorship is caused either by the proprietor’s death or his/her choice of ending it. Also, the proprietor is personally liable for the proprietorship’s liabilities. However, the accounting process of the proprietorship is separate from the personal records of the proprietor. Another important characteristic is about taxation. A proprietorship is not a separate taxable entity. The proprietor pays tax on the income of proprietorship.


3. Soru

What are the characteristics of partnership?

Cevap

Similar to proprietorship, the cancellation of the partnership may be caused either by one of the partners’ death or choice of cancelling it and the partners are personally liable for the partnership’s liabilities. Surely, based on the entity concept the accounting process of a partnership is separate from the personal records of the partners. Partnerships are not separate taxable entities.


4. Soru

What is different about Limited Liability Partnerships?

Cevap

In a Limited Liability Partnerships, all of the members have limited liability. Thus, a Limited Liability Partnership can protect other members from negative possibilities like unethical behaviors that result from some members.


5. Soru

What is the definition of a corporation?

Cevap

A corporation is a legal entity which is organized under state law and owned by shareholders. Thus, the owners in a corporation are called shareholders. A person or an organization may own some certificate that represents the ownership in a corporation named shares of a corporation and called shareholders. Generally, corporations are organized as very large entities and sometimes their shares can be purchased on an organized stock exchange market. These are called publicly held corporations. In this
case, a corporation may have many shareholders.


6. Soru

What are the characteristics of shareholders?

Cevap

As an important characteristic, shareholders are not personally responsible for the corporation’s liabilities. This means that shareholders’ possible loss is limited with their capital investment. Hence, the creditors cannot make any claim on shareholders’ personal assets. This characteristic of corporation is essential for the shareholders because their personal assets are protected and the corporation may raise may raise more capital from shareholders. Also, the government and related regulators design more regulations and try to monitor corporations to protect shareholders’ and creditors’ claims. Another characteristic is the transferability of the shares. This characteristic is
essential for shareholders since it is flexible. They can transfer corporation’s shares to another one.


7. Soru

What are the characteristics of corporations?

Cevap

The cancellation of the corporation does not depend on the death of any shareholder or their choices to cancel it. In other words, the corporation is a permanent organization. The transfer of the shares, anyone’s death or withdrawal do not put an end to the corporation. Another distinguishing difference of a corporation is about taxation. Corporations are taxable entities. All of the corporations have to pay tax. Besides, when corporations make cash payments to the shareholders, double taxation may occur. The imposed taxation is paid by the corporation and the cash received by the shareholders is reported on the income tax return of the shareholder. This subject is called cash dividend. This term “Cash dividend” is an individual share of the income distributed to the shareholders. Contrary to the other types of entities, a corporation is a legal entity separate from its owners. 


8. Soru

What are the advantages of corporations?

Cevap

Advantages
• Corporations are separate legal entities. They are organized independently of their
shareholders.
• Shareholders have limited liability in corporations.
• Corporations have continuous lives.
• Transferability of ownership is easy in corporations in comparison to other types of entities.
• Raising more capital can be easy in corporations in comparison to other types of entities.


9. Soru

What are the disadvantages of corporations?

Cevap

Disadvantages

  • There are greater regulations for corporations in comparison to other types of entities.
  • Corporations may besubject to doubletaxation.
  • Because of some legal procedures, the start-up costs may be higher in the corporations comparing to the other types of entities.

10. Soru

What are the shareholders' rights in corporations?

Cevap

• Vote: Coequal shareholders legally own the corporation. They can manage the corporation indirectly through a board of directors they elect. Shareholders vote on some matters at shareholders’ meetings. In normal conditions, each share carries one vote.
• Dividends: When declared, shareholders receive a proportionate of some dividend. Generally, each share receives an equal amount of dividend.
• Liquidation: When a corporation goes out, shareholders may receive their proportionate share of any asset that still remains.
• Preemption: Shareholders have the right to maintain their proportionate ownership in corporations.

• Receiving Information: Shareholders havethe right to access information related to the corporation.


11. Soru

What is authorized share, issued share and outstanding share?

Cevap

Authorized share is the share number in total that a corporation that a corporation is authorized to sell as indicated in its charter. Issued share is the share that has been issued by the corporation. Outstanding shares are the shares that have already been issued and held by shareholders.


12. Soru

What is common share and preferred share?

Cevap

Common share is a share that represents the ownership of a corporation. Preferred share is a special share that provides its owner some advantages more than a common share does.


13. Soru

What is par value?

Cevap

“Par value” is the nominal value assigned by a corporation to its shares in the charter. It is different than the market value of shares. Most corporations prefer to set par value low enough to protect their corporation to issue shares below par value.


14. Soru

What is par value share?

Cevap

Par value share is the capital share that has a par value.


15. Soru

What is no-par value share?

Cevap

No-par value share is the capital share that has no par value assigned to it.


16. Soru

What is stated value share?

Cevap

Stated value share is a share that assigned to an amount similar to par value.


17. Soru

What is capital share?

Cevap

Capital share means the transferable units that represent the ownership of a corporation.


18. Soru

What are the basic groups of shares according to the shares’ accounting process?

Cevap

As a general classification according to the shares’ accounting process, the classes of shares may be divided into two basic groups:
Common share - Preferred Share
Par Value Share - No-par Value Share-Stated Value Share


19. Soru

What is a share certificate?

Cevap

A share certificate is an evidence that represents the ownership of a corporation.


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