Page 508 - Accounting Principles (A Business Perspective)

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Corporate charter The contract between the state and the incorporators of a corporation, and their
successors, granting the corporation its legal existence.
Corporation An entity recognized by law as possessing an existence separate and distinct from its owners;
that is, it is a separate legal entity. A corporation is granted many of the rights, and placed under many of the
obligations, of a natural person. In any given state, all corporations organized under the laws of that state are
domestic corporations; all others are foreign corporations.
Cumulative preferred stock Preferred stock for which the right to receive a basic dividend accumulates if
any dividends have not been paid; unpaid cumulative preferred dividends must be paid before any dividends
can be paid on the common stock.
Discount on capital stock The amount by which the par value of shares issued exceeds their issue price.
The original issuance of shares at a discount is illegal in most states.
Dividend A distribution of assets (usually cash) that represents a withdrawal of earnings by the owners.
Dividend on preferred stock The amount paid to preferred stockholders as a return for the use of their
money; usually a fixed or stated amount expressed in dollars per share or as a percentage of par value per
share.
Dividends in arrears Cumulative unpaid dividends, including quarterly dividends not declared for the
current year.
Domestic corporation See corporation.
Foreign corporation See corporation.
Incorporators Persons seeking to bring a corporation into existence.
Legal capital (stated capital) An amount prescribed by law (usually the par value or stated value of
shares issued) below which a corporation may not reduce stockholders' equity through the declaration of
dividends or other payments to stockholders.
Liquidation value The amount a stockholder will receive if a corporation discontinues operations and
liquidates by selling its assets, paying its liabilities, and distributing the remaining cash among the
stockholders.
Market value The price at which shares of capital stock are bought and sold in the market.
Minutes book The record book in which actions taken at stockholders' and board of directors' meetings are
recorded; the written authorization for many actions taken by corporate officers.
Noncumulative preferred stock Preferred stock on which the right to receive a dividend expires if the
dividend is not declared.
No-par stock Capital stock without par value, to which a stated value may or may not be assigned.
Organization costs Costs of organizing a corporation, such as incorporation fees and legal fees applicable
to incorporation.
Paid-in capital Amount of stockholders' equity that normally results from the cash or other assets invested
by owners; it may also result from services provided for shares of stock and certain other transactions.
Paid-in capital in excess of par (or stated) value—common or preferred Capital contributed to a
corporation in addition to that assigned to the shares issued and recorded in capital stock accounts.
Par value An arbitrary amount assigned to each share of a given class of stock and printed on the stock
certificate.
Preemptive right The right of stockholders to buy additional shares in a proportion equal to the
percentage of shares already owned.
Preferred stock Capital stock that carries certain features or rights not carried by common stock. Preferred
stock may be preferred as to dividends, as to assets, or as to both dividends and assets. Preferred stock may
be callable and/or convertible and may be cumulative or noncumulative.
Proxy A legal document signed by a stockholder, giving another person the authority to vote the
stockholder's shares at a stockholders' meeting.
Redemption value The price per share at which a corporation may call in (or redeem) its capital stock for
retirement.
Retained earnings The part of stockholders' equity resulting from net income, reduced by dividends and
net losses.

Accounting Principles: A Business Perspective 509 A Global Text