Chapter 18 - Stockholders Equity Flashcards
Equity = ___ - ___
Equity = Assets - Liabilities
Assets = ___ + ___
Assets = Liabilities + Equity
What method is used to record stockholders equity?
Accrual basis
NOT cash
When are revenues recognized?
As they are earned
NOT when cash is received
When are expenses recognized?
As they are incurred
NOT when cash is paid
What is the definition of stockholders equity?
The residual amount or net assets, excess total assets over total liabilities
What is contributed capital?
Common stock
What is earned capital?
Retained earnings
What decreases retained earnings?
Income net loss
Payment of dividends
What increases retained earnings?
Income net gain
What financial statements report stockholders equity?
Balance Sheet
Statement of stockholders equity
What makes up shareholders equity?
+Contributed Capital (Common Stock + Preferred Stock)
+Earned Capital (Retained Earnings)
-Treasury Stock
+/- Accumulated Other Comprehensive Income
What pertaining to contributed capital must be disclosed under GAAP guidelines?
Par Value # of shares issued # of shares outstanding # of shares in treasury
When are other comprehensive income items reported?
After net income in the statement of comprehensive income.
Ex:
Net Income +/- Other comprehensive Income = Comprehensive Income
Examples of “Other Comprehensive Income” items are:
- Foreign currency Translation gains/losses
- Unrealized gains/losses from sale of debt securities
- Deferred gains/losses on derivative financial instruments
- Certain gains/losses on defined benefit pension plans
What are the two ways comprehensive income is reported?
One Statement Approach
Two Statement Approach
What is the advantage and disadvantage to using the one statement approach to report comprehensive income?
Advantage: Does not require the creation of another financial statement
Disadvantage: Net income is “buried” on the income statement
What are the 3 main forms of business organizations?
- Sole Proprietorship
- Partnership (LLP)
- Corporation, C-Corp and LLC
What are the the traits of a corporation, C-Corp and LLC?
- Governed by corporate state law
- Ownership represented by stock
- C-Corp entity is taxed not the owners
- LLC the owners are taxed not the entity
- Personal assets are not exposed
What are the 5 steps to issuing stock?
- Receive articles of incorporation and charter
- Comply with federal/state regulations
- Offer shares (IPO)
- Company receives cash for sale of stock
- Company issues shares of capital stock
