| Course | MAT 201 Principles of Accounting II |
|---|---|
| Module | Module 1 |
| Paper type | Corporate form and equity paper |
| Length | About 1,004 words, 6 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | Business Administration |
| Updated | October 2026 |
Free sample paper for MAT 201 Module 1
From Family Partnership to Corporation: The Stockholders' Equity Section of an Iowa Creamery
Student Name
Business Administration Program, Aspen University
MAT 201: Principles of Accounting II
Instructor Name
Month Day, Year
From Family Partnership to Corporation: The Stockholders' Equity Section of an Iowa Creamery
Cedar Valley Creamery has bottled milk and made butter in Waverly, Iowa, for three generations. Its three owners, two siblings and a cousin, ran it as a partnership with equity of $4.8 million. To compete with larger processors, they want to build a $3 million yogurt line. Banks would lend part of the cost, but the owners decided to raise most of it by selling shares to employees, dairy farmers who supply the plant and other investors in the region. That required becoming a corporation. This paper explains the corporate form, the costs it brings and how the creamery's equity is reported.
Why Incorporate
A corporation is a legal entity separate from its owners. Its owners, the stockholders, are generally liable only to the extent of their investment. Shares can be transferred without dissolving the business, and the business carries on unchanged as its shares change hands. These features let Cedar Valley sell small ownership stakes to many people, something a partnership could not easily do. The costs are also real: a regular corporation pays income tax on its profits, and stockholders pay tax again on dividends; the corporation must keep formal records, hold meetings and file reports; and once outsiders own shares, the family must account to them.
The Cost of Separating Owners and Managers
Jensen and Meckling (1976) built a theory of the firm around one relationship: owners hire managers to act for them, and the two do not want exactly the same things. When managers own less than all of a firm, they bear only part of the cost of actions that benefit themselves at the owners' expense, such as excessive perks or avoiding hard work. Agency costs are the sum of owners' monitoring expenses, managers' bonding expenses to assure owners and the residual loss that remains. Agency costs rise as managers' ownership falls.
At Cedar Valley, the family will still own about 62% of the shares and run the business, but 38% will belong to outsiders who cannot watch daily operations. Agency costs now apply to them.
Separating Management From Control
Fama and Jensen (1983) argued that organizations survive when they separate decision management, initiating and carrying out decisions, from decision control, ratifying and monitoring them. In corporations with many owners, the board of directors performs decision control on behalf of stockholders, and managers perform decision management. Where managers are also the main owners, as in small family firms, the separation matters less, but it becomes important as outside ownership grows.
Cedar Valley will have a five-person board: the three family owners and two independent directors, a retired bank executive and an accountant from Cedar Falls. The board approves budgets and major investments, hires the outside auditor and sets the managers' pay.
Ownership Around the World
La Porta et al. (1999) studied the ownership of the largest firms in 27 wealthy economies. Outside a few countries with strong protection for minority shareholders, such as the United States and the United Kingdom, widely held corporations were uncommon. Most firms had controlling owners, usually families or the state, who often controlled more votes than their cash investment. The finding corrects the image of the corporation as owned by thousands of dispersed stockholders. Cedar Valley, family-controlled with minority outside owners, is closer to the typical firm worldwide. The pattern carries a known risk: controlling families can favor themselves over minority owners, for example by paying themselves generously or dealing with related businesses on favorable terms. The protections described below exist because of that risk.
Protecting the Outside Owners
Beyond the board, three arrangements protect the 38% of owners who are not family. The stockholder agreement gives every owner a right to sell shares back to the company at an appraised price when they leave, so employee owners are not trapped in an illiquid investment. An outside accounting firm will audit the annual statements, so outside owners and the bank can rely on them. And each stockholder receives the audited statements and a letter from the board each year. These steps are forms of the monitoring and bonding that Jensen and Meckling described, and they cost the creamery about $40,000 a year in audit and board fees: the family accepts some cost and constraint so that outsiders will trust it with their money.
Preferred Stock Was Considered
The board considered issuing preferred stock, which would pay a fixed dividend before any dividend on common stock and usually carries no vote. Preferred shares would have let the family keep more voting control, but the employee and supplier investors wanted a share in the creamery's growth, which common stock provides. The charter therefore authorizes only common stock for now, though it can be amended later with stockholder approval.
Share Terms
| Term | Meaning | Cedar Valley |
|---|---|---|
| Authorized shares | Maximum the charter allows | 1,000,000 |
| Issued shares | Shares sold or exchanged to date | 520,000 |
| Outstanding shares | Issued shares held by stockholders | 520,000 |
| Par value | Legal amount per share set in the charter | $1 |
| Additional paid-in capital | Amount received above par | Recorded separately |
The Opening Equity Section
The partners' equity of $4.8 million was exchanged for 320,000 shares, valued at $15 each, the same price the outside investors paid, so neither group was favored. The corporation then sold 200,000 shares at $15 for $3 million in cash. Each share is recorded at its $1 par in Common Stock, and the rest in Additional Paid-in Capital.
| Stockholders' equity | Amount |
|---|---|
| Common stock ($1 par value), 520,000 of 1,000,000 authorized shares issued and outstanding | 520,000 |
| Additional paid-in capital | 7,280,000 |
| Retained earnings | 0 |
| Total stockholders' equity | 7,800,000 |
Conclusion
The corporate form lets Cedar Valley raise $3 million from many investors, at the cost of double taxation, formal reporting and agency costs. Jensen and Meckling explain those costs, Fama and Jensen explain how a board helps control them and La Porta, Lopez-de-Silanes and Shleifer show that family control with outside minority owners is the common pattern. The equity section records who contributed what.
References
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The Journal of Law and Economics, 26(2), 301-325. https://doi.org/10.1086/467037
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. The Journal of Finance, 54(2), 471-517. https://doi.org/10.1111/0022-1082.00115
What the MAT 201 Module 1 instructions ask for
MAT 201 opens with corporations and stockholders' equity, and the first assignment generally centers on what makes a corporation different and how its owners' stake appears on the balance sheet. Follow the Module 1 instructions in your classroom; the creamery and figures are invented. Explain the features of the corporate form, including advantages and costs. Define share terms such as authorized, issued and outstanding shares and par value. Prepare a stockholders' equity section. Explain how the corporation protects outside owners, and whether other classes of stock were considered. Use research on ownership and control. Cite sources in APA 7 form.
Inside the MAT 201 Module 1 example
Cedar Valley's three family partners exchanged their $4.8 million partnership equity for 320,000 common shares and the corporation sold 200,000 more shares at $15 to employees and investors in the region. Jensen and Meckling counted three parts to agency costs: what owners spend watching managers, what managers spend reassuring owners and the value lost anyway. Fama and Jensen's Journal of Law and Economics article argued that separating decision management from decision control helps organizations survive when ownership and management diverge. La Porta, Lopez-de-Silanes and Shleifer's Journal of Finance article studied control of large firms in 27 wealthy economies. The share terms table defines authorized, issued, outstanding and par value. The equity section shows common stock of $520,000 at $1 par, additional paid-in capital of $7,280,000 and no retained earnings yet, a total of $7.8 million. A five-person board, two of them independent, oversees management.
MAT 201 Module 1 rubric: what earns full marks
Corporate equity papers earn credit when they explain the corporate form clearly and prepare an equity section that correctly separates par value from additional paid-in capital. This example explains the creamery's reasons for incorporating, uses Jensen and Meckling and Fama and Jensen to explain the costs and controls of separating owners from managers and uses La Porta, Lopez-de-Silanes and Shleifer to show that family control is common. The share terms table and equity section are accurate. Explaining board structure links accounting to governance. Describing the stockholder agreement and audit as protections for outside owners applies agency theory to a specific company.
Common MAT 201 Module 1 mistakes, and how to avoid them
Corporate equity papers often confuse authorized, issued and outstanding shares, or record the full sale price as common stock. Book each share at par in Common Stock and put whatever buyers paid above par in a separate paid-in capital account. Another weakness is listing advantages of the corporate form without its costs, such as double taxation and agency costs. Explain why the business chose to incorporate. Show the equity section with correct labels. Describe how outside owners are protected. Finally, connect the accounting to the governance structure. Note any classes of stock the company chose not to issue and why.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
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MAT 201 Module 1 questions, answered
What does MAT 201 Module 1 usually ask for?
Aspen's MAT 201 opens with corporations and stockholders' equity, so explaining the corporate form and preparing an equity section is typical. Check your classroom prompt.
What are agency costs?
Jensen and Meckling's term for the costs that arise when owners hire managers whose interests differ, including monitoring, bonding and remaining losses.
What is the difference between issued and outstanding shares?
Issued shares have been sold at some point; outstanding shares are issued shares still held by stockholders, excluding any the company has bought back.
Where can I find a free MAT 201 Module 1 sample paper?
The example above explains a creamery's change to the corporate form and prepares its stockholders' equity section.
Are most large corporations widely held?
La Porta, Lopez-de-Silanes and Shleifer found that outside a few countries with strong investor protection, most large firms are controlled by families or the state.