Inter Acct Chapter_18_day_one_solutions

Inter Acct Chapter_18_day_one_solutions - Chapter 18 Day 1:...

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Chapter 18 Day 1: Question 18-1 The two primary sources of shareholders’ equity are amounts invested by shareholders in the corporation and amounts earned by the corporation on behalf of its shareholders. Invested capital is reported as paid-in capital and earned capital is reported as retained earnings . Question 18-2 The statement of shareholders’ equity reports the transactions that cause changes in its shareholders’ equity account balances. It shows the beginning and ending balances in primary shareholders’ equity accounts and any changes that occur during the years reported. Typical reasons for changes are the sale of additional shares of stock, the acquisition of treasury stock, net income, and the declaration of dividends. Question 18-3 Comprehensive income is a broader view of the change in shareholders’ equity than traditional net income. It is the total nonowner change in equity for a reporting period. It encompasses all changes in equity except those caused by transactions with owners. Transactions between the corporation and its owners (shareholders) primarily include dividends and the sale or purchase of shares of the company’s stock. Most nonowner changes (e. g., revenues and expenses) are reported in the income statement. So, the changes other than the ones that are part of traditional net income are those reported as “other comprehensive income.” Two attributes of other comprehensive income are reported: (1) components of comprehensive income created during the reporting period and (2) the comprehensive income accumulated over the current and prior periods. The components of comprehensive income created during the reporting period - can be reported either (a) as an additional section of the income statement, (b) as part of the statement of shareholders’ equity, or (c) in a disclosure note. Regardless of the choice a company makes, the presentation will report net income, other components of comprehensive income, and total comprehensive income. The second attribute - the comprehensive income accumulated over the current and prior periods – is reported as a separate component of shareholders’ equity. This amount represents the cumulative sum of the changes in each component created during each reporting period throughout all prior years.
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Answers to Questions (continued) Question 18-4 The three primary ways a company can be organized are (1) a sole proprietorship , (2) a partnership , or (3) a corporation. Transactions are accounted for the same regardless of the form of business organization with the exception of the method of accounting for capital – the ownership interest in the company. Several capital accounts (as discussed in this chapter) are used to record changes in ownership interests for a corporation, rather than recording all changes in ownership interests in a single capital account for each owner, as we do for sole proprietorships and partnerships. Question 18-5
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Inter Acct Chapter_18_day_one_solutions - Chapter 18 Day 1:...

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