Equity Flashcards
In your own words, can you explain to me the category known as Equity? I don’t want you to tell me about the specific accounts within Equity. I want to know, conceptually, what is this section trying to communicate to me?
Equity is the value of the owner’s “skin in the game.” It is what the owners have put into the company and profits they have kept.
Now that you have explained the big picture of Equity to me, in your own words can you explain what the section Contributed Capital is communicating to me?
Contributed capital is the historic valuation of their contributions to the company. CC can be divided into common stock and additional paid in capital.
Now that you have explained the big picture of Equity to me, in your own words can you explain what the section Retained Earnings is communicating to me?
Retained earnings are the cumulative gain or loss since the beginning of the company that have not been distributed to shareholders as dividends. This is showing overall profitability of the business since the beginning.
With regards to Equity, in your own words can you explain to me the differences between (a) Authorized Shares, (b) Issued Shares, and (c) Outstanding Shares?
a) Authorized shares are all the shares a company is allowed to issue.
b) Issued shares are all of the shares that have been issued or sold to shareholders, founders, or employees.
c) Shares of stock that are owned by founders/employees/investors.
Now that we are getting further into detail, in your own words can you explain Treasury Stock to me?
Treasury stock is stock that the company has repurchased and held by the company after it has been issued.
In your own words, can you explain what cash dividends represent and why a company would give cash to their investors?
Cash dividends are a way for the company to share profits with investors. Cash dividends are given to attract investors to lower growth or established companies.
In your own words, can you explain to me what the link is between Equity and the Income Statement? I know that Equity shows up on the Balance Sheet and not in the Income Statement. So, why do people say there is a link between Equity and the Income Statement?
The link between Equity and the Income statement is in retained earnings. Retained earnings are the accumulated gains or losses of the company since day 1. So, the beginning balance of RE +/- Net income - dividends declared = ending RE balance. This is what has been the kept profit or the business over the life of the business.
In order to raise capital for global expansion purposes Marjorie Ann, owner of MA’s Motorcycles (GRNY) issued 1,000,000 additional shares of common stock (par value of $1.50) for $22.25 per share on October 1, 2019.
What $ amount will Marjorie increase Common Stock by?
1,500,00
In order to raise capital for global expansion purposes Marjorie Ann, owner of MA’s Motorcycles (GRNY) issued 1,000,000 additional shares of common stock (par value of $1.50) for $22.25 per share on October 1, 2019.
What $ amount will Marjorie increase Additional-Paid-In-Capital (APIC) by?
$20,750,000
In order to raise capital for global expansion purposes Marjorie Ann, owner of MA’s Motorcycles (GRNY) issued 1,000,000 additional shares of common stock (par value of $1.50) for $22.25 per share on October 1, 2019.
What $ amount will Marjorie increase Cash by?
22,250,000
In order to raise capital for global expansion purposes Marjorie Ann, owner of MA’s Motorcycles (GRNY) issued 1,000,000 additional shares of common stock (par value of $1.50) for $22.25 per share on October 1, 2019.
What $ amount will Marjorie increase Revenue by?
0
Ownership activity has nothing to do with revenue.
