Your friend, Jonathon Fain, is an engineering major with an entrepreneurial spirit. He wants to start his own corporation and needs your accounting expertise. He has no idea what the following definitions mean: 1. Authorized stock.
2. Issued stock.
3. Outstanding stock.
4. Preferred stock.
5. Treasury stock.

Required:
Write a note to Jonathon carefully explaining what each term means and how they are different from each other.

Please find the detailed explanation below.

Explanation:

1. Authorized stock:

This is the total(maximum) number of shares a corporation can issue. This can be found in its articles of incorporation or memorandum of association.

2. Issued stock:. This is the summation of all company's shares that have been sold and are held by shareholders.

3. Outstanding stock:

Outstanding stock or shares are all shares of a corporation that have been authorized, issued and purchased by shareholders and are held by them.

4. Preferred stock:

This share is an hybrid stock i.e it has a feature of both the equity and debt in it. Holders of this shares are entitled to fixed dividend payment and are usually paid before common shareholders if the company liquidates.

5. Treasury stock.:

Treasury shares are the shares that are repurchased by the corporation issuing them and thereby, reducing the total number of outstanding shares.

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