CH18: Shareholder's Equity

Question 1

What is another name for shareholder’s equity? what are the two main sources of shareholder’s equity?

Answer 1

Net assets, which is equal to assets minus liabilities. The sources are: 1. Pain in capital, 2. retained earnings.

Question 2

What are the four classifications within shareholder’s equity?

Answer 2

1. pain in capital,
2. retained earnings,
3. accumulated other comprehensive income,
4. and treasury stocks.

Question 3

What kind of transactions reported under Other Comprehensive Income? and what types of gains or losses included there?

Answer 3

OCI reports non-owner changes (gains or losses) other than those that are part of traditional net income.
Types:
1. Net holding gains on investment,
2. Gains from and amendments to post-retirement benefit plans,
3. Deferred gains on derivatives,
4. Adjustments from foreign currency translation.

Question 4

What is a statement of shareholder’s equity?

Answer 4

It reports the transactions that cause changes in its shareholder’s equity account balances.

Question 5

What are the main characteristics of a corporation? and what are some disadvantages to that form of company?

Answer 5

1. Limited liability,
2. Ease of raising capital.

DISADVANTAGES:
expensive reporting requirements.

Question 6

What is S corp.?

Answer 6

It have characteristics of both regular corporations (limited liability protections) and partnerships (no double taxation). The number of partners is limited.

Question 7

Differentiated between limited liability company and limited liability partnership.

Answer 7

LLC: All owners could be involved in managing the company, without losing the limited liability protection. No limitation on the number of partners.

LLP: Same, but partners are liable for their own actions but not entirely liable for the actions of other partners.

Question 8

Companies could issue stocks for consideration other than cash (land, machines, or services). The transaction should be recorded at fair value of the shares. List some ways to find that fair value!

Answer 8

1. A quoted market price for the shares,
2. A selling price established in a recent issue of shares for cash,
3. The amount of cash that would have been paid in a cash purchase of the asset or service,
4. An independent appraisal of the value of the asset received,
5. Other variables.