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Financial Accounting - Chapter 10: Stockholders' Equity

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Authorized Stock

Maximum number of shares a corporation can issue under its charter



Constitution for governing a corporation


Common Stock

The most basic form of capital stock. The common stockholders own a corporation.


Cumulative Preferred Stock

Preferred stock whose owners must receive all dividends in arrears before the corporation can pay dividends to common stockholders



Debit balance in Retained Earnings account


Double Taxation

Corporations pay income taxes on corporate income. Then, stockholders pay personal income tax on the cash dividends that they receive from corporations


DuPont Ananlysis

A detailed approach to measuring rate of return on equity, calculated as follows:

(Net Profit Margin) x (Total Asset Turnover) x (Leverage Ratio)


(Net Income Before Taxes/Net Sales) x (Net Sales/Average Total Assets) x (Average Total Assets/Average Stockholders' Equity)


Issued Stock

Number of shares a corporation has issued to its stockholders


Legal Capital

Minimum amount of stockholders' equity that a corporation must maintain for the protection of creditors.


Limited Liability

No personal obligation of a stockholder for corporation debts.


Liquidation Value

The amount a corporation must pay a preferred stockholder in the event the company liquidates and goes out of business


Market Value

Price for which a person could buy or sell a particular share of stock


Outstanding Stock

Stock in the hands of stockholders


Par Value

Arbitrary amount assigned by a company to a share of its stock


Preferred Stock

Stock that gives its owners certain advantages, such as the priority to receive dividends before the common stockholders and the priority to receive assets before common stockholders if the corporation should liquidate.


Rate of Return on Common Stockholders' Equity

(Net Income - Preferred Dividends)/(Average Common Stockholders' Equity)

A measure of profitability


Rate of Return on Total Assets

(Net Income)/(Average Total Assets)

Measures a company's success in using its assets to earn income for the stockholders


Redeemable Preferred Stock

A corporation reserves the right to buy an issue of stock back from its shareholders, with the intent to retire the stock


Redemption Value

The price a corporation agrees to eventually pay for its redeemable preferred stock, set when the stock is issued.


Stockholders' Equity

The stockholder's ownership interest in the assets of a corporation


Stock Split

An increase in the number of authorized, issued, and outstanding shares of stock coupled with a proportionate reduction in the stock's par value.


Treasury Stock

A corporation own stack that it has issued and later reacquired.

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