The equity section of a balance sheet consists of two

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The equity section of a balance sheet consists of two basic components: contributed capital and earned capital. Contributed capital is the net funding that a company received from issuing and reacquiring its equity shares; that is, the funds received from issuing shares less any funds paid to repurchase such shares. Apple reports $47,791 million in total stockholders' equity. Its contributed capital is $10,668 million. Apple's common stock is "no par" (see Exhibit 2.2). This means that Apple records all of its contributed capital in the common stock account and records no additional paid-in capital. Apple's stockholders (via its board of directors) have authorized it to issue up to 1.8 billion shares of com- mon stock. To date, it has sold (issued) 915,970,050 shares for total proceeds of $10,668 million, or $11.65 per share, on average. Apple has repurchased no shares of stock to date. Earned capital is the cumulative net income (loss) that has been retained by the company (not paid out to shareholders as dividends). Apple's earned capital (titled Retained Earnings) totals $37,169 million as of its 2010 year-end. Its other equity accounts total $(46) million. Retained Earnings There is an important relation for retained earnings that reconciles its beginning balance and its ending balance, which is shown in Exhibit 2.4. Retained Earnings Reconciliation Beginning retained earnings + Net income (or - Net loss) - Dividends = Ending retained earnings This is a useful relation to remember. Apple's retained earnings increases (or decreases) each year by the amount of its reported net income (loss). If Apple paid dividends, it would decrease
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Module 2 I Overview of Business Activities and Financial Statements 2-10 ed earnings, but Apple currently pays no dividends. (There are other items that can impact ed earnings that we discuss in later modules.) After we explain the income statement, _ will revisit this relation and show how retained earnings link the balance sheet and income ment. : BUSINESS INSIGHT How Much Debt Is Reasonable? pple reports total assets of $75,183 million, liabilities of $27,392 million, and stockholders' equity $47,791 million. This reveals that it finances 36% of its assets with borrowed funds and 64% with areholder investment. This is a lower percentage of nonowner financing than other companies ch as Target and Procter & Gamble (P&G). Companies must monitor their financing sourc- es and amounts. Too much borrowing is risky as borrowed amounts must be repaid with interest. e level of debt that a company can effectively manage depends on the stability and reliability of - operating cash flows. Companies such as P&G and Target can manage relatively high debt levels eecause their cash flows are relatively stable. Apple operates in an industry that changes rapidly. It cannot afford to take on too much borrowing risk.
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