¶ … PRACTICES RELATING TO STOCKHOLDERS' EQUITY
Hello. I write a project paper Accounting-302 (intermediate accounting 2). The topic Stockholder's Equity corporation. The emphasis practices,, corporations operate. For, I identify company ( - company) conduct a mini case study topic Stockholder's Equity company.
Common practices relating to stockholders' equity
Stockholders' equity is an item of the balance sheet that represents the capital that has been raised by the investors in the business in exchange for stock, referred to as paid-in capital, retained earnings, and donated capital. It represents the stake of the investors in the company and is calculated by deducting the company's total liabilities from their total assets. Accounting experts commonly refer to stockholders' equity as the book value of the company since it captures the funds that were originally invested by the investors and the additional investments that they made thereafter Lowe, 1961.
It also captures earnings that the company retained over time. For older companies, most of which started as small outfits have grown and retained earnings represent the largest portion of stockholders' equity.
Types of stockholders' equity accounts
There are several types of stockholders' equity accounts. The first is common stock, which is the portion of the stock that is paid in by the investors. This is usually attributable to the par stock value. If the par stock value is minimal, then the balance on this account is often small. Where the stock does not have par value, for example in a startup, this account is not used in the balance sheet.
The second account is the additional paid-in capital on common stock. This represents the price that the investors paid for common stock in the company at a price above the fair market value of the stock....
This account is only used if the state laws require the company to report a par value of the stock against the paid-in value in excess of the common stock. This is a requirement to assess capital gains in the part of the company selling stock. Google reports class A and B. common stock and additional paid-in capital of $15 billion in the year ended 2009 and this has grown to $25 billion at the end of the year ended 2013 Google Inc., 2013()
Preferred stock are the third account. This contains the amount that investors pay for preferred stock in a company. Preferred stock refers to a class of ownership where the stockholders have a higher claim on the company's assets and earnings than stockholders of common stock. Dividends are always paid out to holders of preferred stock while common stockholders may or may not be paid dividends based on the financial performance of the company Soo & Soo, 1994.
Preferred stockholders also do not have voting rights as common stockholders do. Google does not have any preferred stock accounts in their balance sheet meaning they have not issued preferred stock Google Inc., 2013()
The fourth account for stockholders' equity is additional paid-in capital on the preferred stock. This is similar to the account for additional paid-in capital on common stock except this account is for preferred stock. It captures the prices that is paid by the company's investors for preferred stock at a price exceeding the fair market value of the stock Nurnberg, Stickney, & Weil, 1975()
The fifth account for stockholders' equity is retained earnings. This refers to the cumulative income that the company has earned less the dividends paid out. Often companies reporting profits issue dividends at a certain percentage of the profit and retain the remainder to finance future activities. These retained earnings are…
