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Lecture Intermediate accounting (4/e): Chapter 18 - Spiceland, Sepe, Tomassini

Chapter 18 - Shareholders’ equity. In this chapter, we turn our attention from liabilities, which represent the creditors' interests in the assets of a corporation, to the shareholders' residual interest in those assets. The discussions distinguish between the two basic sources of shareholders' equity: invested capital and earned capital. | Shareholders’ Equity 18 Insert Book Cover Picture Chapter 18: Shareholders’ Equity. Learning Objectives Describe the components of shareholders’ equity and explain how they are reported in a statement of shareholders’ equity. LO1 Our first learning objective in Chapter 18 is to describe the components of shareholders’ equity and explain how they are reported in a statement of shareholders’ equity. The Nature of Shareholders’ Equity Assets – Liabilities = Shareholders’ Equity Net Assets (Residual Interest) Shareholders’ equity accounts represent the ownership interests of the shareholders in a corporation. From the balance sheet, total shareholders’ equity equals total assets minus total liabilities. Another way to think about shareholders’ equity is that it represents the portion of a corporation’s assets that have been financed by the owners as opposed to that portion that has been financed by creditors Sources of Shareholders’ Equity Shareholders’ Equity Paid-in Capital Retained Earnings Amounts earned by corporation Amounts invested by shareholders Accumulated Other Comprehensive Income Other gains and losses not included in net income Part I. Corporations have two primary sources of equity. The first is paid-in capital representing amounts that shareholders have invested by buying shares of stock from the company. Part II. The second source of equity is retained earnings. The retained earnings account reports the cumulative amount of net income the corporation has earned since its organization less the cumulative amount of dividends declared since organization. This is the portion of the net income that has been reinvested in the business rather than distributed to the owners in dividends. Part III. Accumulated other comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to owners. The Corporate Organization Advantages: Ease of raising capital. Ease of ownership transfer. Limited liability. . | Shareholders’ Equity 18 Insert Book Cover Picture Chapter 18: Shareholders’ Equity. Learning Objectives Describe the components of shareholders’ equity and explain how they are reported in a statement of shareholders’ equity. LO1 Our first learning objective in Chapter 18 is to describe the components of shareholders’ equity and explain how they are reported in a statement of shareholders’ equity. The Nature of Shareholders’ Equity Assets – Liabilities = Shareholders’ Equity Net Assets (Residual Interest) Shareholders’ equity accounts represent the ownership interests of the shareholders in a corporation. From the balance sheet, total shareholders’ equity equals total assets minus total liabilities. Another way to think about shareholders’ equity is that it represents the portion of a corporation’s assets that have been financed by the owners as opposed to that portion that has been financed by creditors Sources of Shareholders’ Equity Shareholders’ Equity Paid-in Capital Retained .