Equity

Question 1

Equity Ratio

Answer 1

Equity = Total Assets - Total Liabilities
Presented as:
Preference Stock +
Common Stock +
Additional Paid in Capital (APIC) +
Retained Earnings +
Accumulated Other Comprehensive Income (AOCI) -
LESS: Treasury stock =
Equity

Question 2

Equity

Answer 2

Represents net value of company from the owners or shareholder’s viewpoint.

Question 3

Preference Stock

Answer 3

AKA Preferred Stock.
Higher claim on assets and earnings than common stock
Typically has no voting rights

• Dividend Preference - typically have right to receive before any dividends are paid to Common Stockholders.
• Liquidation Preference - if corp is liquidated, preferred stockholders will receive their share of company resources before those with common shares

Question 4

Preferred Share Types

Question 5

Preferred Share Issuance Accounting

Answer 5

Company will receive cash or other consideration. Shares par or face value is credited to Preferred Stock account and any amount over par is credit to the Additional Paid in Capital Preferred stock account.

Cash XX (Debit)
Preferred Shares (XX) (Credit)
APIC (XX) (Credit)

Question 6

Preferred Share Dividend Payments

Answer 6

Dividends Declared - recognized as a liability (dividends payable). The debit is to Retained Earnings.

 Retained Earnings XX (Debit)
 Dividends Payable (XX) (Credit)

Dividends Paid -
Dividends payable XX(Debit)
Cash (XX) (Credit)

Question 7

Preferred Shares Redemption

Answer 7

Redemption - bought back.

Preferred Shares XX (Debit)
Cash (XX) (Credit)

Question 8

Preferred Shares Balance Sheet Presentation

Answer 8

Irredeemable Preferred Stock - no fixed redemption date and are not expected to be repaid in the foreseeable future; classified as equity on balance sheet

Redeemable Preferred Shares - have fixed redemption date (or if company must redeem in near future), the may be classified as liability. However, if redemption is discretionary, they might still be classified as equity.

Balance Sheet - On liability and equity side
Non Current Liabilities (Redeemable) XXX
Equity (Irredeemable) XXX