3 Other equity such as treasury stock a subtraction oWhen a company buys back

3 other equity such as treasury stock a subtraction

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(3) Other equity, such as treasury stock (a subtraction) o When a company buys back its own shares, accountants call the repurchased shares treasury stock . o Treasury shares can be retired, or they can be retained and reissued later. o Treasury stock is usually shown on the balance sheet as a subtraction from total stockholders’ equity. Can you figure out why? Treasury Stock is not real stock. The company really holds nothing. o If it used $50,000 of cash to buy back $50,000 of its own shares, the cash is gone. o If the cash is gone, either liabilities or equity must go down to balance. o Therefore, the $50,000 would be taken out of equity (not added to equity). Accumulated other comprehensive income Notes to the Financial Statements: o Summary of significant accounting policies. o Additional information to support summary totals found on the financial statements, usually the balance sheet. o Information about items that are not reported on the basic statements because the item fails to meet recognition criteria but are still important for users in their decision making. o Contingencies deemed possible (e.g. lawsuits). If it were deemed probable , it would be record on the financial statements, not merely disclosed. Subsequent events: o The SEC requires large publicly traded companies to file their financial statements within 60 days of fiscal year-end. o Business continues during this “subsequent period” and events could take place that have a material impact upon the firm’s financial statements for the preceding year. o These events are referred to in the accounting literature as subsequent events . o Depending on the nature of the subsequent event, the financial statements may need to be adjusted or a disclosure may need to be made. o E.g., a major customer owing the company $1,000,000 files for bankruptcy on January 10. Because of the bankruptcy, the $1,000,000 may no longer be collectible. Although the filing of the bankruptcy petition occurred on January 10, the facts likely existed before the end of the year and the receivable may need to be adjusted. o Domestic vs. Foreign Balance Sheet o o Domestic Corp o Foreign Corp o Assets Current assets are listed before noncurrent assets and in the order of their liquidity. Property, plant, and equipment and intangibles are generally listed first. o Liabilities Current liabilities are listed before noncurrent liabilities. Current assets and current liabilities are listed together.
The difference between the two is referred to as “net current assets” or “net working capital.” The Income Statement: o The income statement reports the results of a company’s operations—the sale of goods and services and the associated cost of operating the company—for a given period. o The long-term survival of a company depends on its ability to produce net income by earning revenues in excess of expenses.

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