Accounting For

Corporations
Organization and Share
Transactions

Created by INS / Romario khaled

INS / Romario khaled
 ‫‪Solo‬‬

‫‪Partnership‬‬

‫ٍحو ىثِ صغُر‬

‫‪Solo To Partnership‬‬

‫ػاَس َنثر و َسود اه‬

‫‪Assets‬‬
‫فثاىراىٍ هى ٍحراج َسود اىرَىَو‬ ‫حة َنثر امرر و َثقٍ ٍصْغ و‬
‫تضاػره ذْسه فٍ مو اىَحالخ‬

‫ٍفُع قذاٍه غُر اىحو االخُر‬

‫ٍفُع قذاٍه غُر اىحو االوه اّه َؼَو‬ ‫‪Corporation‬‬
‫‪Partnership‬‬ ‫غرمح ٍطاهَح‬
‫َذخو غرماء َؼرفهٌ ( اصحاته )‬ ‫َْسه اه ‪Financial market‬‬

‫‪INS / Romario khaled‬‬

ٍ‫ الزً ّرؼرف ػي‬Corporation ‫و ػػاُ ّفهٌ َؼٍْ اَه‬

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 ‫اىثىرصح ‪Stock Exchange market‬‬
‫ذؼاىٍ هضَْل قذاً اىَطرثَرَِ و ذثقٍ ذاتغ ىُا و ىطُاضاخ اىذوىح االقرصادَح‬

‫هطثؼيل ػقىد ٍػارمح ذقذر ذصذرها ىيْاش اىيٍ ذؼرفها و اىيٍ ٍرؼرفهاظ ػػاُ اىْاش ذػارمل و ذسود اصىىل و راش ٍاىل‬

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 ‫ػذد االسهم انهى انشركح مسمىدهها انها ذثيعهم ‪Authorized Stock‬‬

‫ذؼَو ‪َ Issuance‬ؼٍْ اصذار َؼٍْ ذجُة ّاش ذػارمل‬

‫و اه ‪ Capital‬هُسَذ‬ ‫ذسود اه ‪Cash‬‬

‫‪Cash‬‬ ‫‪1000‬‬
‫)‪Capital ( Stock‬‬ ‫‪1000‬‬

‫‪INS / Romario khaled‬‬

INS / Romario khaled
 Types of a Corporation ‫اّىاع اىػرماخ‬

By purpose ‫تاىغرض‬

Profit Not-for-profit
‫شركاخ هذفها‬
‫شركاخ غير هادفح‬
‫انرتخ‬ ‫نهرتخ‬
(NIKE) (57357)

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 ‫اّىاع اىػرماخ ‪Types of a Corporation‬‬

‫تاىَينُح ‪By ownership‬‬

‫‪A publicly Held‬‬ ‫‪privately Held‬‬

‫اي حذ َقذر َػررٌ‬ ‫ّىع اىَطاهَُِ فً اىػرمح‬
‫اىطهٌ تراػها‬ ‫او اىيً َقذروا َػرروا‬
‫)‪(Orascom‬‬ ‫االضهٌ ذجَؼهٌ صفح ٍثال‬
‫ػُيح واحذج زي اىؼذه‬
‫جروب‬

‫‪INS / Romario khaled‬‬

 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

ُ‫و اىؼقىد و ٍْفصيح ػِ ٍالمها فً االضٌ اىضراَة و اىذَى‬

1 - SEPARATE LEGAL EXISTENCE ‫اىػخصُح االػرثارَح ىيػرمح‬
( Advantage )
the corporation acts under its own name rather than in the name of its
stockholders.
Nike may buy, own, and sell Assets . It may borrow money, and it may enter into
legally contracts in its own name. It may also sue or be sued, and it pays its own
taxes.
In a partnership, the acts of the owners (partners) bind the partnership. In
contrast, the acts of its owners (stockholders) do not bind the corporation

INS / Romario khaled

 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

2 - LIMITED LIABILITY OF STOCKHOLDERS ( Advantage )

ِ‫دَىُ اىػرمح خاصح و ٍْفصيح ػ‬

‫ٍالمها َؼًْ ىى اىػرمح فيطد‬
ً‫اىذَاّح ٍيهَع اال االصىه اىي‬
‫ٍِ ضَها فيىش اىػرماء تراػد‬
‫اىػرمح تص و ٍيهَع ػالقح تَالك‬
ًْ‫االضهٌ و ال َؼرثروا ٍذَىُِّ َؼ‬
‫ٍرػررَع اّد ضهٌ غرمح اىػرمح‬
‫ذخطر َجً حذ َقىىل اىػرمح‬
‫ٍذَىّح هاخ فيىش‬

-Since a corporation is a separate legal entity, creditors have recourse only to

corporate assets to satisfy their claims.
- The liability of stockholders is normally limited to their investment in the
corporation.
- Creditors have no legal claim on the personal assets of stockholder
( Non personal liability )

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 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

3 - TRANSFERABLE OWNERSHIP RIGHTS ‫ ( ضهىىح ّقو اىَينُح‬Advantage )

- Stockholders may dispose of part or all of their interest in a corporation

simply by selling their stock
- Don’t need permission

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 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

4 - CONTINUOUS LIFE ‫ضَاُ اضرَرارَح اىَؤضطح‬ ( Advantage )

-Continuance as a going concern is not affected by the withdrawal,

death, or incapacity of a stockholder

‫اىػرمح ٍطرَرج و ٍنَال حرً ىى احذ اىَالك ٍاذىا َؼًْ ٍثال ىى واحذ ٍػرري ضهٌ ه‬
. ‫(و ٍاخ او اذحثص او فيص اىػرمح هرقفو امُذ ال طثؼا‬orascom )

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 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

5 - ABILITY TO ACQUIRE CAPITAL (easy to raising capital )

‫اىقذرج ػيٍ زَادج راش اىَاه فٍ اٌ وقد‬
( Advantage )

‫ػاَسج ذَىَو‬

‫اىػرمح‬ ‫ذصذر أضهٌ ػقىد ٍػارمح‬

Increase in Capital
‫زَادج فٍ راش اىَاه‬ ‫َجُيها ماظ‬

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 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

‫هْا َجٍ َطاىْا ضؤاه ٍهٌ جذا‬

The ability of a corporation to raise capital is

a. enhanced because of limited liability and ease of share transferability.
b. less than a partnership.
c. restricted because of the limited life of the corporation.
d. about the same as a partnership.

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 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

6 - CORPORATION MANAGEMENT

- professional managers
- Although shareholders legally own the corporation, they manage the corporation
indirectly through a board of directors they elect ‫ينرخة‬. The head of board
- He sets the operating, investing, and financing policies of the company and selects
officers to execute policy and to perform daily management functions.
( Advantage )
- separation of ownership and management
If there are many investors having no clear majority interest, the management team of
a corporation can operate the business without any real oversight from the owners.
( Disadvantage )

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 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

7 - GOVERNMENT REGULATIONS ٍٍ‫اىرْظٌُ اىحنى‬

( Disadvantage )

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 Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

8 - ADDITIONAL TAXES ٍ‫االزدواج اىضرَث‬

Dividends

( Disadvantage )

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Characteristics of a Corporation )‫( (خصائص اىػرمح‬8)

INS / Romario khaled

A Corporation definition :

- A corporation is a business entity that legally exists separately from its owner(s).
- The owners of a corporation are shareholders; their percentage of ownership in the
business is represented by their corporate stocks or shares.

- Shareholders can choose a board of directors to manage business operations .

- Corporations are more complex than unincorporated businesses. You will need to file
the taxes for the corporation separately from your personal taxes. In most states, and
have limited liabilities

- is a legal entity created by law, in which its capital stock is divided into equal units called
shares those shares are traded in an organized market

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 Stockholder Rights ‫دمىق اصذاب االسهم‬

1 - Share the corporate earnings through receipt of dividends.

profit maximization ( ‫ذذصيم ارتاح (دك انرتذيح‬

2 - Share in assets upon liquidation in proportion to their holdings. This is called a

residual claim because owners are paid with assets that remain after all other claims have
been paid.(wealth maximization ) ‫دك انذصىل عهى ما ذثمى من انشركح تعذ االفالس‬

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 Stockholder Rights ‫دمىق اصذاب االسهم‬

3 - Vote in election of board of directors at annual meeting and vote on actions

that require stockholder approval. ‫دك انرصىيد عهى مجهس االدارج‬

4 - Keep the same percentage ownership when new shares of stock are issued
(preemptive right ‫)دك االسرثماء‬. ‫انذفاظ عهى نفس نسثح انمهكيح مهما اصذرخ انشركح اسهم‬

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 Important Terminology

1 - AUTHORIZED STOCK ‫عذد االسهم انهى انشركح مسمىدهها انها ذثيعهم‬

The charter indicates the amount maximum size of stock that a corporation is authorized to
sell. (100 stock ) NO Entry in Journalizing

2 - ISSUANCE OF STOCK ٌ‫ػَيُح اصذار االضه‬

A corporation can issue common stock: ( Directly & Indirectly)
- Directly to investors
- Indirectly through an investment banking firm that specialize in bringing securities to
the attention investors
3 – OUTSTANDING STOCKS
Stocks that have been already Issued ( 20 Stock at Jan & 60 Stock at Feb ) Issued = 80 Stock
4 – MARKET PRICE OF STOCK )‫( اىناظ اىيٍ هُذخو جُثٍ او االصىه اىيٍ ذسَذ فٍ اىػرمح ػْذ االصذار‬
The interaction between buyers and sellers determines the prices per share.

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 Important Terminology
PAR VALUE AND NO-PAR STOCKS

PAR VALUE ‫اىقَُح االضَُح‬
is capital stock to Value which the charter has
assigned a value per share (Legal Capital )
‫ اىطؼر اىيً ٍطثىع ػيً اىطهٌ ضاػح ذاضُص‬-
‫اىػرمح وىِ َرغُر و ال َؼثر ػِ اداء اىطهٌ او‬
‫رتحُره‬
‫قَُح ثاترح ال ذرغُر‬
Permanent Value
No-par value stock )‫(ٍع ٍطثىع ػيُه ضؼر‬
is capital stock to which the charter has not
assigned a value. No-par value stock is fairly
common today
‫قَُره ٍع ٍطثىع ػيُه‬
Stated value:
A stated value is an amount assigned by
board of director to a corporation's stock
‫مجهس االدارج تيذذذه ولد انثيع‬
Non par ُ‫ ىى اىطهٌ ما‬Par Value ‫تُحو ٍحو اه‬
Temporary value

Both value are Not related to Fair or market

Value

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 Important Terminology
Kinds of stocks

After Preferred Stock At First

Not Recorded as Liability
but as Foot note

And after creditor

Common stock Also Called Ordinary Shares

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 Exercises

False

True

False

False

False

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 Exercises MCQ

1 - Under the corporate form of business organization,

a. stockholders wishing to sell their corporation shares must get the approval of other holders.
b. stockholders wishing to sell their corporation shares need not get the approval of other
stockholders, thus making it easy to transfer ownership rights.
c. a stockholder is personally liable for the debts of the corporation.
d. stockholders' acts can bind the corporation even though the stockholders have not been
appointed as agents of the corporation.
2 -Which of the following is not characteristic of a corporation?
a. Corporations are required to file federal income tax returns.
b. The financial loss that a stockholder may suffer from owning stock in a public company
is limited to the amount invested.
c. Corporations have less regulatory costs than other business forms.
d. A corporation can own property in its name.
3 - The number of shares of stock that a corporation can issue as stated in its
charter is referred to as
a. arrears.
b. authorized.
c. outstanding.
d. issued.

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 Exercises MCQ
4 - The major rights that accompany ownership of a share of common stock include all of
the following except the right to
a. share in the distribution of earnings.
b. vote in matters concerning the corporation.
c. use the assets of the company.
d. share in assets upon liquidation.
5. The pre-emptive right of an ordinary shareholder is the right to
a. share proportionately in corporate assets upon liquidation.
b. share proportionately in any new issues of stock of the same class.
c. receive cash dividends before they are distributed to preference shareholders.
d. exclude preference shareholders from voting rights.
6 . Which one of the following would not be considered an advantage of the
corporate form of business organization?
a. Limited liability of shareholders
b. Separate legal existence
c. Continuous life
d. Government regulations

INS / Romario khaled

 Exercises MCQ
7. Which of the following is not true of a corporation?
a. It may buy, own, and sell assets.
b. It may sue and be sued.
c. The acts of its owners bind the corporation.
d. It may enter into binding legal contracts in its own name.
8. Which of the following statements reflects the transferability of ownership rights in a
corporation?
a. If a shareholder decides to transfer ownership, he or she must transfer all of his
shares.
b. A shareholder may dispose of part or all of his or her shares.
c. A shareholder must obtain permission from the board of directors before selling
shares.
d. A shareholder must obtain permission from at least four other shareholders before
selling shares
9 - The ability of a corporation to raise capital is
a. enhanced because of limited liability and ease of share transferability.
b. less than a partnership.
c. restricted because of the limited life of the corporation.
d. about the same as a partnership

INS / Romario khaled

 Exercises MCQ
10. Which of the following statements is not considered a disadvantage of the
corporate form of business organization?
a. Additional taxes
b. Government regulations
c. Limited liability of shareholders
d. Separation of ownership and management
11. Which of the following is not a right or preference associated with
preferred stock?
a. The right to vote
b. First claim to dividends
c. Preference to corporate assets in case of liquidation
d. To receive dividends in arrears before ordinary shareholders receive
dividends
12. The par value of shares
a. is legally significant.
b. reflects the most recent market price
c. is selected by the IASB.
d. is indicative of the worth of the shares

INS / Romario khaled

 Exercises MCQ
13 - The authorized stock of a corporation
A. Only reflects the initial capital needs of the company.
B. Is indicated in its by-laws.
C. Is indicated in its charter.
D. Must be recorded in a formal accounting entry.
14 - Which of the following factors does not affect the initial market price of a stock?
A. The company's anticipated future earnings.
B. The par value of the stock.
C. The current state of the economy.
D. The expected dividend rate per share.

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