Exam (elaborations)
Accounting – Equity questions with actual answers.
- Course
- Institution
Accounting – Equity questions with actual answers.
[Show more]
Seller
Follow
Content preview
Accounting – Equity questions withactual answers.
Equity ANS - ...represents investments by stockholders in the company.
Two Components of Equity on Balance Statement ANS - - Contributed Capital: Direct investments by the
firms' owners. Owners receive stock in exchange for their contributions to the firm.
- Retained Earnings: Indirect investment by the firm's owners. These are earnings that are not
distributed back to the owners and are instead kept in the company.
Contributed Capital: ANS - Direct investments by the firms' owners. Owners receive stock in exchange
for their contributions to the firm.
Retained Earnings: ANS - Indirect investment by the firm's owners. These are earnings that are not
distributed back to the owners and are instead kept in the company.
Paid-in-Capital ANS - Contributed Capital
Types of Contributed Capital ANS - 1) Common Stock
2) Preferred Stock
Common Stock ANS - ...represents ownership in a firm. Common stock-holders have voting rights which
enable them to control the firm.
Common stock also represents the ultimate residual claim in the event of liquidation.
How does Common Stock differ from Preferred Stock? ANS - While common stock stands behind
preferred stock and liabilities as a claim, common stockholders are not restricted as to the dividends
they might receive or the gains they might realize in liquidation.
, Authorized Shares ANS - The number authorized is the number of shares that shareholders have
authorized the firm to issue. Increasing the number of authorized shares later requires shareholder
approval. To avoid the need for shareholder approval every time, firms often authorize more shares
than they would like to issue.
How do firms avoid the need of shareholder approval to authorize more shares of stock? ANS - Firms
often authorize more shares than they would like to issue initially.
Issued Shares ANS - Shares of stock that can potentially be traded among investors.
Shares Outstanding ANS - Held by shareholders.
Repurchased Shares ANS - Treasury stock.
Preferred Stock ANS - ...is an equity security with properties of both an equity and a debt instrument,
and is generally considered a hybrid instrument. Preferreds are senior (i.e. higher ranking) to common
stock, but subordinate to bonds in terms of claim (or rights to their share of the assets of the company).
Par Value ANS - Stated value of a share of stock.
What effect does share issuance have on the Balance Sheet? ANS - Assets increase as cash increases.
Owners' equity increases.
What effect does share issuance have on the Income Statement? ANS - No effect
What effect does share issuance have on the Cash Flow Statement? ANS - An increase in cash flows
from financing.
Average Issue Price (of stock) ANS - = Total raised from issuing / # of Shares issued
= (Par value + APIC) / # of Shares issued
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Professorkaylee. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
77254 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now