CHAPTER 18 notes - CHAPTER 18 CHAPTER Stockholders...

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CHAPTER 18 CHAPTER 18 Stockholders’ (Shareholders’) Equity Stockholders’ (Shareholders’) Equity Part A: The Nature of Shareholders’ Equity I. Sources of Shareholders’ Equity A. A company can raise money externally to fund operations in either of two ways: 1. Debt financing. a. Takes the form of notes, bonds, leases, and other liabilities. b. Creates creditors’ interest in the assets of the business. 2. Equity financing. a. Creates ownership interests in the assets of the business. b. Owners of a corporation are its shareholders. c. Shareholders’   equity   is   a   residual   amount,   the   amount   that  remains after creditor claims have been subtracted from assets.   B. Shareholders’ equity is created mainly by: 1. Amounts invested by shareholders – paid-in capital. 2. Amounts earned by the firm on behalf of its shareholders – retained earnings. II. Shareholders’ Equity in Financial Statements The balance sheet reports balances of shareholders’ equity accounts. Comprehensive income, a more expansive view of the change in shareholders’ equity than traditional net income, is the total nonowner change in equity for a reporting period. Transactions between the corporation and its shareholders primarily include dividends and the sale or purchase of shares of the company’s stock. Nonowner changes other than those that are part of traditional net income are the ones reported as “other comprehensive income.” Other comprehensive income is reported in two places. 1. Components of comprehensive income created during the reporting period - can be reported either (a) as an additional section of the income statement, (b) as a separate statement, often included in the financial statements in a disclosure note. Each component is reported net of its related income tax expense or income tax benefit. 2. The comprehensive income accumulated over the current and prior periods – is reported as a separate component of shareholders’ equity.
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B. The statement of shareholders’ equity discloses transactions that cause changes in shareholders’ equity account balances. Exposition Corporation Balance Sheet ($ in millions) December 31, 2011 Assets [$3,000] Liabilities [$1,000] Shareholders’ equity P AID - IN C APITAL : Capital stock (par): Preferred stock, 10%, $10 par, cumulative, nonparticipating $100 Common stock, $1 par 55 Common stock dividends distributable 5 Additional Paid-in Capital: Paid-in capital – excess of par, common 260 Paid-in capital – excess of par, preferred 50 Paid-in capital – share repurchase 8 Paid-in capital – conversion of bonds 7 Paid-in capital – stock options 9 Paid-in capital – stock award plan 5 Paid-in capital – lapse of stock options 1 Total paid-in capital $ 500 a. Rev c. NI - Exp +- OCI (net of tax) _______ __________ NI CI +- OCI (net of tax) ____________ CI
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R ETAINED EARNINGS 1,670 A CCUMULATED C OMPONENTS OF C OMPREHENSIVE I NCOME : Unrealized gains (losses) on investment securities
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This note was uploaded on 02/22/2012 for the course ACC 311 taught by Professor Crampton during the Winter '11 term at Jacksonville College.

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CHAPTER 18 notes - CHAPTER 18 CHAPTER Stockholders...

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