CORPORATION RETAINED EARNINGS

- It is created by operation of law having the right of - Profits or losses and distributions to the owners are
succession and powers, attributes, and properties recorded on this.
expressly authorized - It is the cumulative profits that are retained in the
business and not yet distributed to the
CHARACTERISTICS OF CORPORATION shareholders.
1. Artificial Being – a separate and distinct personality - Appropriations of retained earnings indicate
from the shareholders, and as such, it may acquire or amounts that are not available for distribution
dispose properties, incur and pay obligations, sue NOTE: If the retained earnings account has NEGATIVE
and be sued. BALANCE it is called “DEFICIT” in FS, if shareholders’
2. Legal personality – the operation of law legally equity has a negative balance, it is a CAPITAL DEFICIENCY
creates a corporation's identity and as such is a
juridical person with rights, powers and duties.
3. Right of succession – shall exist for a period as DIVIDENDS – distribution of profit to the shareholders.
provided in its articles, and cannot be dissolved by
the death, incapacity, or insolvency of a member or TYPES OF DIVIDENDS
shareholder. 1. Cash Dividends – most common form of distribution.
- Its legal life is 50 years and such period can be
2. Property Dividends – distribution in the form of
extended for another 50 years.
noncash assets.
4. Corporate ownership – Interest and right over the
3. Share Dividends – 20% and more is considered large
corporation are divided into shares of stock. An
investor buys shares of stock to become a KEY DATES OF DIVIDENDS
shareholder whose interest and rights in the firm are
1. Date of Declaration – The Board of Directors
based on the number of shares and the kind of shares
formally announces the distributions of dividends.
acquired.
2. Date of Record – the date on which the stock and
5. Transferability of interest - shares of stock owned by
transfer book of the corp. is closed for registration.
a shareholder may be sold or transferred without
3. Date of Distribution – dividends are declared and
prior consent of the other stockholders. Such
distributed
transfer or sale does not affect the business
operation. MOVEMENT OF STOCKS

METHODS OF ISSUING STOCKS 1. Authorized Shares - the maximum number allowed

to be issued as authorized by the SEC
1. Initial Public Offering (IPO) - process where a private
2. Issued shares - fully paid shares where a stock
company offers its shares to the public for the first
certificate a made to the shareholder
time.
3. Subscribed shares - shares purchased by an investor
2. Private Placement - involves selling securities
subject to an installment pay contract.
directly to a select group of investors, such as
4. Treasury Shares – issued shares that were
institutional investors or accredited individuals,
reacquired by the corporations
rather than through a public offering.
5. Outstanding shares – total issued shares less those
3. Rights Issue - allows existing shareholders the
in the treasury. These are the stocks still in the hands
opportunity to purchase additional shares at a
of shareholders
discounted price before they are offered to new
investors. Share Certificate – a document evidences ownership of
a share

Legal Capital – a portion of contributed capital that

cannot be distributed to the owners during the lifetime
of the corporation.
TYPES OF STOCK ISSUED INCORPORATION REQUIREMENTS

1. Ordinary Shares (common stock) – residual - At least 5 persons but not more than 15
corporate interest, and they generally control the - At least 25% of the authorized capital stock as stated
management of the corporation and tend to profit in the articles of incorporation must be subscribed at
the most if the corporation is successful. the time of incorporation

RIGHTS: KINDS OF CORPORATION

a) Right to attend and vote in shareholders’ 1. Public corporation - has stock that is widely held and
meeting available for public distribution, often traded on
b) Right to purchase additional shares (preemptive national or regional stock exchanges
or stock right) - Include stock (Google) and non-stock (Union)
c) Right to dividends 2. Private corporations include sole proprietorships,
d) Right to share in the net assets of the partnerships, and privately owned corporations.
corporation upon liquidation Shares in a private corporation are not publicly
2. Preferences Shares (preferred stock) – stock traded and are typically held by a smaller number of
ownership in a corporation that holds a higher shareholders.
priority claim on the company's assets and earnings - Ex. AC Industrials and IKEA
compared to common stock 3. Close corporations - have a small number of
- No right to vote shareholders, often closely associated with the
business. These corporations are typically exempt
RIGHTS
from many requirements for traditional
a) Priority over common shareholders corporations, such as creating a board of directors
b) Receive fixed dividend payment and mandatory annual shareholder meetings.
c) Liquidation Priority - Ex. Koch Industries, and Mars, INC.
4. Open corporation - is one in which stock is widely
LONG TERM LIABILITIES held or available for wide public distribution through
1. Bonds payable - are long-term debts issued by such means as trading on a national or regional stock
corporations, governments, or other entities to raise exchange.
capital, with a promise to pay periodic interest and - Ayala Corporation and Petron Corporation
repay the principal at maturity CORPORATE STRUCTURES
2. Mortgages payable - typically used to finance real
estate and are secured by a lien on the property STOCKHOLDER = OWNERS

ADVANTAGES OF CORPORATION BOARD OF DIRECTORS = POLICYMAKERS

1. Capital – large amount of resources can easily PRESIDENT (CEO) = MANAGERS

acquired by selling shares through investment to PSE
VICE PRESIDENT = MANAGER UNDER PRESIDENT,
2. Liability to corporate creditors – limited liability
MANAGE SPECIFIC TASK (MARKETING OR FINANCE, etc)
3. Transferability of interest – issued stock may be
transferred to other through stock market. ACCOUNTS TITLES USED FOR STOCK TRANSACTIONS
4. Continued existence – has 50 years legal life.
1. Share Capital – credited at the PAR value when
5. Skilled Management – maybe managed by
shares sold or subscribed have been fully collected
professionals.
2. Subscription Receivable - this is an account title
DISADVANTAGES OF CORPORATION debited at the subscription price on the number of
shares subscribed.
1. Tax Liability – 25% tax of their income
3. Subscribed Share Capital – debited when
2. Legal Requirements – many legal requirements
subscription fully collected.
3. Lack of Control – shareholders have no direct control
4. Paid in Capital in Excess of PAR – excess or premium
over the affairs of corporations (BOD works)
ACCOUNTING FOR SHARE CAPITAL PARTNERSHIP
1. Memorandum Method - Association of two or more individuals to carry on,
- Only a memorandum is made for the authorized co-owners, a business, with intention of dividing
capitalization profits
Ex. “The authorized capitalization is 1,000,000 divided - The Civil Code of the Philippines, Republic Act No.
into 10,000 shares with par value of 100” 386, governs partnerships the Philippines through
articles 1767-1867.
- Issuance of shares is credited to the SHARE CAPITAL
2. Journal Entry Method FEATURES OF PARTNERSHIP
- Authorized capitalization is recorded by crediting 1. Voluntary Association
“authorized share capital” and debiting “unissued 2. Legal Entity
share capital” 3. Co-ownership of Property
- UNISSUED SHARE CAPITAL used in the issuance of 4. Taxable Entity
shares 5. Mutual Agency
6. Limited Life
7. Unlimited Liability

ELEMENTS OF PARTNERSHIP

1. There must be a valid contract, whether oral or

written
2. A partnership must be put up by persons having legal
capacity
3. Their contribution must be in the form of money,
property, or service
4. The purpose of the business is to divide the profit
among them.

ROLE OF PARTNERS

1. The partners are co-owners of the partnership

property. It means that when a partner invests his
land or building, this ceases to be his personal
property. Instead, this becomes joint property of all
the partners.
2. The partners have unlimited liability.
3. The partnership is Bound by the acts of any of the
partners since they are considered agents of the
partnership to carry its activities.

KINDS OF PARTNERSHIPS

1. AS TO LIABILITY

A General Partnership is one where all partners are

general partners with unlimited liability.

A Limited Partnership is one where there is at least one

general partner and one or more limited partners.
2. AS TO PROPERTY CLOSING ENTRIES

A Universal Partnership of PROPERTY is one where all 1. Close the Net Sales
the partners contribute all their properties into a
2. Close the Cost of Sale or COGS
common fund.
3. Close the Operating Expenses
A Universal Partnership of PROFITS is one where the
partners contribute all what they will receive as a result 4. Income Summary xxx
of their work or service rendered during the lifetime of
the partnership. Income Tax Liability xxx

KINDS OF PARTNERS To record income tax liability

1. General Partner 5. Income Summary

2. Limited Partner Partner 1, Drawing
3. Capitalist Partner
4. Industrial Partner Partner 2, Drawing
5. Real Partner To record the profit share of partners
6. Nominal Partner
7. Secret Partner
8. Managing Partner
9. Permanent Partner
10. Dormant Partner

2 ACCOUNTS IN PARTNERS EQUITY

1. Capital Account
2. Drawing Account

DISSOLUTION - it is a change in the relation of the

partners ceasing to be associated in carrying on the
business.

CAUSES OF DISSOLUTION

1. ACTS OF PARTNER
2. OPERATION OF LAW
3. JUDICIAL DECREE

LIQUIDATION - Is the process of winding up the affairs

of the business towards its termination.

REALIZATION – a process of converting non-cash assets

into cash

ALLOCATION OF PROFIT

PARTNER 1 CONTRIBUTIONS/
COMBINED CONTRIBUTION OF PARTNERS x NET
INCOME AFTER TAX = PROFIT OF PARTNER 1

BARRION (45,000/100,000 x 15,000) = Barrion’s profit

JOHN (55,000/100,000 x 15, 000) = John’s profit