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AU / Accounting / ACCT 2110 / What is meant by stockholder's equity and its function?

What is meant by stockholder's equity and its function?

What is meant by stockholder's equity and its function?

Description

School: Auburn University
Department: Accounting
Course: Principles of Financial Accounting
Professor: Elizabeth miller
Term: Fall 2015
Tags:
Cost: 50
Name: ACCT2110 Final Exam Study Guide
Description: Stockholders' Equity - journal entries and characteristics, Common Stock versus Preferred Stock, how to handle changes in assests with equity adjustments.
Uploaded: 04/28/2017
8 Pages 280 Views 1 Unlocks
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4/20  Chapter 10: Stockholders’ Equity If you want to learn more check out economics final exam study guide chapters 1-15

Resources = Obligations + Equities If you want to learn more check out Who was the first sociologist to translate Comte into English because she was an English social theorist?

                        Retained earnings                 Paid-in capital         

        (net effects of revenue, exp & dividends)

Don't forget about the age old question of a schema for routine events is called

RE is link between income statement & balance sheet

Corporation

        Organized under laws

        Corporate charter/ articles of incorporationDon't forget about the age old question of ➔ What causes solar activity?

        Separate legal entity - highest percentage of income tax

                nights & privileges as a person We also discuss several other topics like What is meant by Nationality?

        classified by purpose & ownershipWe also discuss several other topics like Why is Marketing important in any business?

Distinguishing Characteristics

        Separate legal “person”

        Limited liability of stockholders - not held responsible for company

        Transferable ownership rights

        Ability to raise capital

        Continuous life

Corporation management

Government regulation

Additional taxes

Look under paid-in capital line items to determine class

        Partnership = partnership accounts

        Sole proprietorship = owner accounts

        Corporation = stocks

Taxes lower on capital gain than dividends

Investment strategy determined by situation (economic and environmental)

        Age - lower age can afford higher risk

        Income - control taxes, control timing taxable event

        Risk - high risk, high reward

Dividends - steady income stream

                Low risk

                More taxes

Stocks - based on market/economy

          Higher risk - high risk

          Lower taxes

          High reward - buy low, sell high

Equity indicates an ownership of your resources by outside entities in a situation where you have no control over that ownership they are there until they choose not to be.

Legal Capital Accounts:                        - by law -

Common stock                encompass legal dollar value of company

Preferred stock

Legal capitalization requirement for that state

Above par - additional paid in capital (PIC)

               came in exchange for ownership

Raise capital - gain resources by selling ownership

Common sources for corp

Paid-in capital - sold stock

        Common stock        normal credit balance

        Preferred stock

Common stock

Preferred stock        normal credit balance

Additional PIC

Retained earnings or deficit

Accumulated other comprehensive income (not captured by R/E market adjustments)

Treasury stock (contra equity account) - normal debit balance

  • Stock bought back by company -

  • Authorized shares - max # allowed to be sold
  • Identified by corporate charter
  • No entry; disclosed on footnote of financial statement

  • Issued shares - # actually sold
  • Formation of corp
  • Ongoing - require transactions

  • Outstanding shares - # of issued actually in hands of stockholders
  • Consider treasury stock
  • Difference between issues & outstanding = required shares

Common Stock

  • Stock certificate - proof of ownership
  • Legal capital account - par x #shares
  • Sale above par - additional PIC
  • Ownership nights
  • Voting (based on ownership)
  • Pro rata participation in dividends
  • Pro rata participation in residual assets
  • Presumption - maintaining ownership

  • Financial gain
  • Stock appreciation (capital gain)
  • Dividends

  • Par value set upfront

        based on maximum capitalization -

Preferred Stock

  • Stock certificate
  • Separate class of stock - different acct
  • Less risky than common stock
  • Par x #shares
  • Sale above par - additional PIC
  • Preference for liquidation & dividends over common stockholders
  • Get dividends first -

10-5 Sale common & preferred stock

Authorized - 2,000 shares                 7% preferred stock

            Par $30/share

Authorized - 125,000 shares at 0.01/share common

Issue 1,300 preferred at $35/

         84,000 common at $1250/

Record: Issuance of preferred

(2013        Cash        $45,500 (1300 x 30 = 39000)

Jan        1                    Preferred stock $39,000

                               (1300 x 5 = 6500)

                           Additional pic $6,500

                                In excess of par

Record: Insurance of common

(2013        Cash 1,050,000        (84,000 x 0.01)

Jan                                 Common stock $840

                                (84,000 x 12.49)

                                Additional pic $1,049,160

                                 In excess of par

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