6.11 Shareholders' (Stockholders') Equity Basics

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Shareholders Equity Basics

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<ul><li><p>14/06/2015 Shareholders'(Stockholders')EquityBasics</p><p>http://www.investopedia.com/examguide/cfalevel1/financialstatements/equitybasics.asp?view=print 1/2</p><p>Financial Statements - Shareholders' (Stockholders') Equity BasicsFinancial Statements - Shareholders' (Stockholders') Equity BasicsI. BasicsI. Basics</p><p>Components of Shareholder's EquityComponents of Shareholder's EquityAlso known as "equity" and "net worth", the shareholders' equity refers to the shareholders' ownership interest in a company.Also known as "equity" and "net worth", the shareholders' equity refers to the shareholders' ownership interest in a company.</p><p>Usually included are:Usually included are:</p><p>Preferred stockPreferred stock - This is the investment by preferred stockholders, which have priority over common shareholders and - This is the investment by preferred stockholders, which have priority over common shareholders andreceive a dividend that has priority over any distribution made to common shareholders. This is usually recorded at parreceive a dividend that has priority over any distribution made to common shareholders. This is usually recorded at parvalue.value.</p><p>Additional paid-up capital (contributed capital)Additional paid-up capital (contributed capital) - This is capital received from investors for stock; it is equal to capital stock - This is capital received from investors for stock; it is equal to capital stockplus paid-in capital. It is also called "contributed capital".plus paid-in capital. It is also called "contributed capital".</p><p>Common stockCommon stock - This is the investment by stockholders, and it is valued at par or stated value. - This is the investment by stockholders, and it is valued at par or stated value.</p><p>Retained earningsRetained earnings - This is the total net income (or loss) less the amount distributed to the shareholders in the form of a - This is the total net income (or loss) less the amount distributed to the shareholders in the form of adividend since the company's initiation.dividend since the company's initiation.</p><p>Other items - Other items - This is an This is an all-inclusive account that may include valuation allowance and cumulative translation allowanceall-inclusive account that may include valuation allowance and cumulative translation allowance(CTA), among others. Valuation allowance pertains to noncurrent investments resulting from selective recognition of(CTA), among others. Valuation allowance pertains to noncurrent investments resulting from selective recognition ofmarket value changes. Cumulative translation allowance is used to report the effects of translating foreign currencymarket value changes. Cumulative translation allowance is used to report the effects of translating foreign currencytransactions, and accounts for foreign affiliates.transactions, and accounts for foreign affiliates.</p><p>Look Out!Look Out!These components are listed in the order of their liquidation priority.These components are listed in the order of their liquidation priority.</p><p>Figure 6.5: Sample Balance SheetFigure 6.5: Sample Balance Sheet</p><p>Stockholders' Equity StatementStockholders' Equity StatementInstead of presenting a detailed stockholders' equity section in the balance sheet and a retained earnings statement, manyInstead of presenting a detailed stockholders' equity section in the balance sheet and a retained earnings statement, manycompanies prepare a stockholders' equity statement. companies prepare a stockholders' equity statement. </p><p>Shareholders' (Stockholders') Equity BasicsShareholders' (Stockholders') Equity BasicsBy By InvestopediaInvestopedia</p></li><li><p>14/06/2015 Shareholders'(Stockholders')EquityBasics</p><p>http://www.investopedia.com/examguide/cfalevel1/financialstatements/equitybasics.asp?view=print 2/2</p><p> 2015, Investopedia, LLC. 2015, Investopedia, LLC.</p><p>This statement shows the changes in each type of stockholders' equity account and the total stockholders' equity during theThis statement shows the changes in each type of stockholders' equity account and the total stockholders' equity during theaccounting period. This statement usually includes:accounting period. This statement usually includes:</p><p>Preferred stockPreferred stockCommon stockCommon stockIssue of par value stockIssue of par value stockAdditional paid-in capitalAdditional paid-in capitalTreasury stock repurchaseTreasury stock repurchaseCumulative Translation Allowance (CTA)Cumulative Translation Allowance (CTA)Retained earningRetained earning</p></li></ul>