Chapter_08 - Chapter 8 The Analysis of the The Statement of

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Chapter 8 The Analysis of the The Analysis of the Statement of Statement of Shareholders’Equity Shareholders’Equity
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The Analysis of the Statement of Shareholders’ Equity Chapter 7 gave a design for financial statements that readies them for analysis. Link to Previous Chapter This chapter reformulates the statement of owners’ equity according to the design in Chapter 7. The reformulation highlights comprehensive income. This Chapter Chapters 9 continues the reformulation with the balance sheet and the income statement. Link to Next Chapter For more applications, visit the website Link to Web Page How is the statement of owners’ equity reformulated to highlight the information it contains ? How is dirty- surplus income treated in the reformulation ? What is hidden dirty-surplus income ?
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What you will learn from this What you will learn from this Chapter Chapter How GAAP statements of shareholders' equity are typically laid out Why reformulation of the statement is necessary What is reported in "other comprehensive income" and where it is reported What "dirty-surplus" items appear in the statement of shareholders' equity How stock options work to compensate employees How stock options and other contingent equity claims result in hidden expenses How management can create (or lose) value for
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GAAP Statement of Shareholders’ Equity Opening book value of equity (common and preferred) + Net share transactions with common stockholders + Capital contributions (paid in capital from share issues) - Share repurchases (into treasury stock or against paid-in capital) + Net share transactions with preferred shareholders + Capital contributions (share issues) - Share redemptions + Change in retained earnings + Net income - Common dividends - Preferred dividends + Accumulated other comprehensive income + Change in unearned (deferred) stock compensation Closing book value (common and preferred)
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The Governing Accounting The Governing Accounting Relation Relation Book value, beginning of period + Comprehensive income - Net payout to shareholders = Book value, end of period
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Reformulated Statement of Reformulated Statement of Stockholders’ Equity Stockholders’ Equity Opening book value of common equity (CSE t-1 ) + Net transactions with common shareholders + Capital contributions (share issues) - Share repurchases - Common dividends + Comprehensive Income to common shareholders + Net income + Other comprehensive income - Preferred dividends Closing book value of common equity (CSE t ) Note that preferred equity is taken out of the common shareholders' equity statement (and treated as a liability).
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Chapter_08 - Chapter 8 The Analysis of the The Statement of

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