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Unformatted text preview: 19:11 15-1 Bob Anderson, UCSB 2004 STOCKHOLDERS EQUITY Chapter 15 15-2 Bob Anderson, 2004 Think about it Who owns a Company? The Stockholders Who controls a Company? The Stockholders Who runs the Company? Executive Management (called C level, as in CEO, CFO, COO- think of C as Chief) So if the shareholders control the Company, but management runs things, how do the shareholders maintain control? The Corporate bylaws grant this power to the Board Of Directors (BOD). The shareholders VOTE for the BOD to represent them. The BOD is managements boss, they are responsible for insuring that the Shareholders objectives are carried out by management. BOD are under increasing pressure in the post-Enron era. 15-3 Bob Anderson, 2004 Stockholders interest in a firm is a ... Residual Interest Derived from the basic accounting equation ... Assets - Liabilities = Stockholders Equity 15-4 Bob Anderson, 2004 Stockholders Equity Components Three Buckets: 1. Contributed Capital Common Stock Preferred Stock 2. Earned Capital Retained Earnings Accumulated Other Comprehensive Income 3. Treasury Stock Company can NOT own itself, so when it buys its own shares, they are treated as a contra-equity amount Stock is assigned a par value. The value it sell for is usually different than its par value. The difference between the amount paid and par is called APIC. If no-par, then think of par as whatever it sells for, therefore no APIC on no-par stock If sells for < par, then it is a contingent liability of the purchaser, it is a debit APIC to the Company. 19:11 15-5 Bob Anderson, 2004 Examples are: Unrealized Gain or Loss on Available for Sale Securities Foreign currency translation adjustments Minimum pension liability adjustment Examples are: Issuance and Repurchase of Stock Cash and Scrip Dividends Examples are: Stock Splits StockDividends Conversion of Preferred Stock to Common Net Income Investments By and Distribution to Owners Changes in Equity that Affect Assets and Liabilities Sources of Changes in Equity All Transactions and Events that Cause Changes in Equity Other Comprehensive Income Revenues Expenses Gains Losses IN OTHER WORDS- NET INCOME Changes in Equity that Do Not Affect Assets and Liabilities 15-6 Bob Anderson, 2004 Retained Earnings Basic changes : a. Net income/ loss b. Prior period adjustments. c. Certain changes in accounting principles d. Adjustments due to quasi-reorganization d. Dividends (cash, scrip, stock, property) Always a decrease e. Some treasury stock transactions Retire treasury stock and run out of APIC- as discussed in previous slides....
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This note was uploaded on 08/06/2008 for the course ECON 136B taught by Professor Anderson during the Spring '08 term at UCSB.
- Spring '08