Somebody please correct me if I am wrong, but issuing capital stock increases total assets. If one considers total assets when calculating net income, any capital stock or additional paid in capital must be deducted from total assets in order to find net income.
Issuance of stock does not contribute to income from operations; it is a financing activity that contributes to total equity. Also, if there are dividend payments for the year, these outflows must be added to assets before arriving at net income.
Debit Capital stock xx Credit Cash xx Generally you would offset costs of issuing common or preferred stock against the similar equity account.
19. What effect will the declaration and distribution of a stock dividend have on net income and cash flows? (Points : 2)No effect on net income or cash flowsNo effect on net income, decrease cash flowsDecrease net income, decrease cash flowsIncrease net income, no effect on cash flows
Stock dividend changes the number of shares outstanding but it does not have any affect on amount of capital
[Debit] Cash / bank [Credit] share capital
Purchase of treasury stock has no effect on the net income of a business. The purchase may affect cash flow of the business. No profit or loss is claimed when shares are re-issued at above or below cost.
It allows the corporation to raise capital.
Main purpose for issuing more stock is to get more cash to run the business and to invest in good opportunities or to fulfil the working capital requirements.
Debit Capital stock xx Credit Cash xx Generally you would offset costs of issuing common or preferred stock against the similar equity account.
One reason is raise capital for a company without sacrificing the control of company. Issuing common stock would do this.
One reason is raise capital for a company without sacrificing the control of company. Issuing common stock would do this.
19. What effect will the declaration and distribution of a stock dividend have on net income and cash flows? (Points : 2)No effect on net income or cash flowsNo effect on net income, decrease cash flowsDecrease net income, decrease cash flowsIncrease net income, no effect on cash flows
investors cannot earn money, the company does not have to repay capital, paying dividends is not an option
Capital structure
Businesses issue stock to raise capital Advantages of issuing stock: - A Company can raise more capital than it could borrow. - A Company does not have to make periodic interest payments to creditors. - A Company does not have to make principal payments. Disadvantages of Issuing Stock: - The principal owners have to share their ownership with other shareholders. - Shareholders have a voice in policies that affect the company operations. Source Qwoter.com
No.
An example of the growth factor in common stock is retaining profits in order to reinvest into the firm
Stock dividend changes the number of shares outstanding but it does not have any affect on amount of capital