Summary: Shareholders’ Equity

Shareholders’ Equity represents monetary contributions from a company’s stock (equity) owners and from the course of its operations (Exhibit 6.23). Along with liabilities, Shareholders’ Equity forms another major source of funding for companies. Companies can choose to fund themselves through the sale of their shares of stock and through retained earnings, which they have accumulated over the course of their existence.

Exhibit 6.23. Shareholders’ Equity Typically Consists of (But is Not Always Limited to):
Preferred StockStock that has special rights and takes priority over common stock
Common Stock Par ValuePar value of units of ownership of a corporation
Additional Paid-In Capital (APIC)Represents capital received by a company when its shares are sold above their par value
Treasury StockCommon stock that had been issued and then reacquired (bought back) by a company
Retained EarningsTotal amount of earnings of a company since its inception minus dividends and losses (if any)

19. Shareholders’ Equity
Exercise
Q1:Line items typically found in the shareholders’ equity section include:
Retained earnings
Treasury stock
Cash
Preferred stock
Additional paid-in capital

20. Shareholders’ Equity
Exercise
Q1:The following components of shareholders’ equity represent major source of funding:
Retained earnings
Treasury stock
Common stock
Additional paid-in capital

21. Shareholders’ Equity
Exercise
Q1:Treasury stock represents:
Common stock waiting to be issued by a company
A contra equity account, increases in which reduce shareholders’ equity
Common stock that had been issued and then reacquired by a company
An account by which a company adjusts balances between common stock and additional paid-in capital accounts

19. Shareholders’ Equity
Solution
Q1:Line items typically found in the shareholders’ equity section include:
Retained earnings
Treasury stock
Cash [It is found under the Assets side of the balance sheet.]
Preferred stock
Additional paid-in capital

20. Shareholders’ Equity
Solution
Q1:The following components of shareholders’ equity represent major source of funding:
Retained earnings
Treasury stock [Increases in treasury stock reduce shareholders’ equity and are a use of funding.]
Common stock
Additional paid-in capital

21. Shareholders’ Equity
Solution
Q1:Treasury stock represents:
Common stock waiting to be issued by a company
A contra equity account, increases in which reduce shareholders’ equity
Common stock that had been issued and then reacquired by a company
An account by which a company adjusts balances between common stock and additional paid-in capital accounts

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