Accounting Review Notes

631 WordsAug 7, 20123 Pages
ACCOUNTING REVIEW NOTES Chapter 13 Corporations: Organization and Share Capital Transactions Page 688 Questions and Answers 1. Corporations can be classified in different ways. For example, they may be classified by purpose (e.g., profit, not-for-profit, or income trust) or by ownership (e.g., public or private). Explain the difference between each of these types of classifications. Ans. Corporations can be classified: • By Purpose -Profit: such as Tim Hortons’ -Not-For-Profit: such as Canadian Cancer Society -Income Trust: such as Yellow Pages • By Ownership -Publicly Held Corporation: –may have thousand of shareholders. -shares exchanged in TSX -e.g. Sears, Bombardier -Privately Held Corporation:-few shareholders -shares are not sold to the public -e.g. McCain Foods 2. Pat Kabza, a student, ask for your help in understanding the following characteristics of a corporation: (a) limited liability of shareholders, (b) transferable ownership rights, and (c) ability to acquire capital. Explain how these characteristics work together to create a significant advantage for the corporate form of organization. Ans. (a) Limited liability of shareholders: liability is limited to the amount invested on the corporation by the investor and better liability control compared to proprietorship and a general partnership. (b)Transferable ownership rights: ownership is held in shares of capital, easy to transfer ownership and transfer of shares is on shareholder decision. So it does not require approval of either the corporation or other shareholders. (c)Ability to acquire capital:

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