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Shares Authorized, Issued, and Outstanding quiz #1 Flashcards

Shares Authorized, Issued, and Outstanding quiz #1
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  • What are authorized shares in the context of a corporation's common stock?
    Authorized shares are the maximum number of shares a corporation is allowed to sell, as specified in its corporate charter.
  • How do issued shares differ from authorized shares?
    Issued shares are the total number of shares that have actually been sold to investors, while authorized shares represent the maximum number that can be sold according to the corporate charter.
  • What are outstanding shares and how are they calculated?
    Outstanding shares are the shares currently held by investors, calculated as issued shares minus any shares repurchased by the corporation as treasury stock.
  • What is treasury stock and how does it affect the number of outstanding shares?
    Treasury stock consists of shares that the corporation has repurchased from investors; these shares reduce the number of outstanding shares but remain part of the issued shares.
  • If a corporation has not repurchased any of its shares, how do the numbers of issued and outstanding shares compare?
    If no shares have been repurchased, the number of issued shares is equal to the number of outstanding shares.
  • Explain the relationship among authorized, issued, and outstanding shares using the concept of concentric circles.
    Authorized shares form the largest circle, representing the maximum possible shares; issued shares are a smaller circle within, representing shares sold; outstanding shares are the smallest circle, representing shares still held by investors after any repurchases.
  • Why might a corporation choose to repurchase its own shares, and what is the accounting term for these shares?
    A corporation might repurchase its own shares to reduce the number of shares outstanding or for other strategic reasons; these repurchased shares are called treasury stock.
  • What is the definition of authorized shares in a corporation's common stock?
    Authorized shares are the maximum number of shares a corporation is allowed to sell, as specified in its corporate charter.
  • How do issued shares differ from outstanding shares in a corporation?
    Issued shares are the total number of shares sold to investors, while outstanding shares are those still held by investors after subtracting any shares repurchased by the corporation as treasury stock.
  • How does the 'concentric circles of common stock' visual aid illustrate the relationship among authorized, issued, and outstanding shares?
    The largest circle represents authorized shares, the middle circle represents issued shares, and the smallest circle represents outstanding shares, showing how each is a subset of the previous.