Answer to Question #307396 in Accounting for Lukas

Question

(a) Define the term corporation and briefly discuss the major characteristics of a corporation 

(b) Write few notes on the following headings

(i) Authorisedshares 

(ii) Called-up capital.

(iii) Issued capital

(iv) Paid-up capital.

(v) Par Value

(c) Explain the meaning of treasury stock 

(d) Outline the characteristics of preference shares 

Answer 1

a) A corporation is a legal entity that is separate and distinct from its owners.

i) A corporation is owned by shareholders.

ii) It has limited liability.

iii) They are managed by professionals.

iv) They have a continuous life span.

v) They are subject to double taxation.

b)

i) Authorized shares is the maximum number of shares that a corporation is legally allowed to issue to shareholders.

ii) Called up capital is the amount of share capital shareholders owe but have not paid.

iii) Issued capital is the amount of shares that have been sold to shareholders against cash or any other consideration.

iv) Paid up capital is the amount of money received from shareholders in exchange for shares.

v) Par value is the price of shares at the time it is issued.

c) Treasury stock is previously issued shares which a company has bought back from shareholders.

d) Preference shareholders do not have the right to vote.

They have a right to claim assets in case the company winds up.

They are entitled to a fixed dividend payout irrespective of profit earned.