Stockholder equity

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1. Define a corporation and mention two characteristics of a corporation.

2. Explain the following:

a. Legal Entity

b. Stockholder

3. Define an organizational chart of a corporation

4. Define the following concepts:

a. Stockholder equity

b. Pain-in capital

c. Retained earnings

d. Dividend

e. Stock

5. Explain your understanding of the following:

a. Outstanding stock

b. Par value

c. Common stock

d. Preferred stock

e. Cummulative preferred stock

f. Premium

g. Discount

h. Stock split

i. Treasury stock

 

*Unit 1 Discussion (ACC303 Intermediate Accounting)

Please complete Judgement Case 1-12.

Consider the question of whether the United States should converge accounting standards with IFRS.

Required:

· Make a list of arguments that favor convergence.

· Make a list of arguments that favor nonconvergence.

· Indicate your own conclusion regarding whether the United States should converge with IFRS, and indicate the primary considerations that determined your conclusion.

 

*Unit 1 Discussion (ACC301 Cost Accounting)

Read 1-56 and complete the questions on page 39.

1-56. Responsibility for Unethical Action

The following story is true except that all names have been changed and the time period has been compressed.

Charles Austin graduated from a prestigious business school and took a job in a public accounting firm in Atlanta. A client hired him after five years of normal progress through the ranks of the accounting firm. This client was a rapidly growing, publicly held company that produced software for the health care industry. Charles started as assistant controller. The company promoted him to controller after four years. This was a timely promotion. Charles had learned a lot and was prepared to be controller.

Within a few months of his promotion to controller, the company’s chief financial officer abruptly quit. Upon submitting her resignation, she walked into Charles’s office and said, “I have given Holmes (the company president) my letter of resignation. I’ll be out of my office in less than an hour. You will be the new chief financial officer, and you will report directly to Holmes. Here is my card with my personal cell phone number. Call me if you need any advice or if I can help you in any way.”

Charles was in over his head in his new job. His experience had not prepared him for the range of responsibilities required of the company’s chief financial officer. Holmes, the company president, was no help. He gave Charles only one piece of advice: “You have lots of freedom to run the finance department however you want. There is just one rule: Don’t ever cross me. If you do, you’ll never work again in this city.” Charles believed his boss could follow through on that threat because he was so well-connected in the Atlanta business community.

The end of the company’s fiscal year came shortly after Charles’s promotion to chief financial officer. After reviewing some preliminary financial amounts, Holmes stormed into Charles’s office and made it clear that the results were not to his liking. He instructed Charles to “find more sales.” Charles was shocked, but he did as he was told. He identified some ongoing software installation work that should not have been recorded as revenue until the customer signed off on the job. Charles recorded the work done as of year-end as revenue, even though the customer had not signed off on the job. He sent an invoice to the customer for the amount of the improper revenue, then called her to say that the invoice was an accounting error, and she should ignore it.

The next year, Charles’s work life was better, but his personal life was not. He went through a costly divorce that resulted in limited time spent with his two small children. Now he was particularly concerned about not crossing his boss because of the threat that he would never work in Atlanta if he did. He could not bear to look for a new job that would take him away from his children. Further, it would be difficult to find a job anywhere that came close to paying the salary and benefits of his current job. With high alimony and child support payments, Charles would feel a dire financial strain if he had to take a cut in pay.

The company struggled financially during the year. Clearly, the company would not generate the level of revenues and income that Holmes wanted. As expected, he again instructed Charles to find some way to dress up the income statement. It did not matter to Holmes whether what Charles did was legal or not.

Charles had exhausted all legitimate ways of reducing costs and increasing revenues. He faced an ethical dilemma. He could resign and look for a new job, or he could illegitimately record non-existent sales. He now understood why the former chief financial officer had resigned so abruptly. He wished that he could talk to her, but she was traveling in Australia and could not be contacted. The board of directors would be no help because they would take the president’s side in a dispute.

After considering his personal circumstances, Charles decided to record the illegitimate sales as the president had instructed. Charles knew that what he did was wrong. He believed that if the fraud was discovered, Holmes, not he, would be in trouble. After all, Charles rationalized, he was just following orders.

Required:

a. Can you justify what Charles did?

b. What could Charles have done to avoid the ethical dilemma that he faced? Assume that the company president would have made it impossible for Charles to work in Atlanta in a comparable job.

c. What if the Securities and Exchange Commission discovered this fraud? Would Charles’s boss get in trouble? Would Charles?

 

Sample Solution

The amount of assets still accessible to shareholders after all obligations have been satisfied is known as shareholders’ equity, sometimes known as shareholders’ or owners’ equity. It can be computed as the sum of a company’s share capital and retained earnings less treasury shares or alternatively as the firm’s total assets less total liabilities. Common stock, paid-in capital, retained earnings, and treasury stock are all examples of stockholders’ equity. Conceptually, stockholders’ equity can be used to evaluate the funds kept within a company. If this number is negative, it can be a sign that the company is about to file for bankruptcy, especially if there is also a sizable debt obligation.

to see that the infrastructure of his roman state was intact and fortified under his direction. After five years of travel to improve the cities of Corinth, Manteca, and Sicily, Hadrian returned to Rome. He had laid down excellent groundwork for his governmental policy, so he finally had time to improve the infrastructure in his nation’s capital. He would soon realize his visions for structures like the Temple of Venus, and his most significant architectural accomplishment of all: The Pantheon.

Rome’s Pantheon was originally built by Marcus Vipsanius Agrippa. Destroyed by fire during Nero’s reign in year 80, Hadrian had it completely redesigned and reconstructed. “The very character of the Pantheon suggests that Hadrian himself was its architect…an impassioned admirer of Greek culture and art and daring innovator in the field of Roman architecture, could have conceived this union of a great pedimental porch in the Greek manner and of a vast circular hall, a masterpiece of architecture typically Roman in its treatment of curvilinear space, and roofed with the largest dome ever seen.” In lieu of his inherent modesty, he decided not to even put his own name on the façade of the building. Instead he would give credit to the original designer, by inscribing it with M. Agrippa. Though there is no hard proof that Hadrian was its only designer, it is only reasonable to believe that his mind, infused with Roman and Greek culture, could conjure its design – that which is one of the most renowned structural feats in human history. The most significant difference between typical Roman and Greek architecture was the importance of height. Romans believed in reaching for the heavens with their architecture. The bigger and more grandiose a building or monument was the better.

It is unusual that we do not find much ancient documentation on the building despite its historical importance. In fact, the only written report from the time is from Dio Cassius who thought the building

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