Accounting Exam 2: Statement of Stockholders
Equity
What is the statement of stockholders equity? ** Answ** a statement that reflects
the changes in equity for the owners interest for a period of time and ending the balance
at a point in time
Statement of stock holders equity reports what three parts? ** Answ** 1. changes in
paid in capital from issuance of new shares of stock (when a company sells stock)
2. changes in treasury stock transactions (repurchases stock)
3. changes in retained earnings (increase/decrease) based on a net income or a net
loss
how do you calculate equity? ** Answ** assets - liabilities = equity
why is this statement needed? ** Answ** so that stockholders can see how their
equity has changed over a period ( how it has increased or decreased)
a corporation is a _______________ entity organized under a ____________ charter
** Answ** legal
state ( or article of incorporation)
Corporations are more ___________ and __________________ to form compared to
other forms of business such as sole proprietorships and partnerships ** Answ**
costly
complex
a corporation is considered a _______________ entity from its _________ ( not a pass-
through entity) ** Answ** seperate
owners
what are two types of corporations? ** Answ** public and private
what does it mean if a corporation is public? ** Answ** stock is publicly traded on a
stock exchange
what does it mean if a corporation is private? ** Answ** stock is privately traded
what is the advantage to a corporation? ** Answ** it has access to greater amounts
of capital than a sole proprietor or partnership
Disadvantages of a corporation ** Answ** owners pay taxes on dividends received
from the corporation even though the corporation pays taxes on the income it earns
, what is it called when in a corporation owners pay taxes on dividends received from the
corporation even though the corporation pays taxes on the income it earns? ** Answ**
double taxation
what is a stockholder? ** Answ** someone who owns shares of stock in a company
(buying ownership into that company)
what 5 rights do stockholders have? ** Answ** 1. the right to vote on corporate
matters (if common stock)
2. right to participate in profits (dividends)
3. right to residual assets after creditors (assets - liabilities= equity)
4. preemptive right to purchase of new issues of shares
5. Have limited liability- loss up to stock investment
what are the two categories of capital that a company has access to? ** Answ** 1.
paid in (or contributed) capital
2. earned capital that is retained by a company
what is paid- in capital ** Answ** dollars that the company has received in exchange
for stock
what is earned capital and what is it also called ** Answ** the accumulated net
income from operating the business that is not distributed to stockholders as dividends
retained earnings
how does a company receive capital? ** Answ** at its initial issuance of stock to the
public
and re-sales of its own stock (treasury stock) that the company purchased from the
exchange
what are the two types of stock? ** Answ** 1. common stock
2. preferred stock
common stock has.... ** Answ** has voting rights, higher risk because they are paid
last in dissolution, no guaranteed dividends
preferred stock has.. ** Answ** has special privileges, no voting rights, usually offers
guaranteed dividends
Authorized Shares ** Answ** shares that are legally available for sale (set in the
companies charter)
Issued shares ** Answ** shares that have been sold
Equity
What is the statement of stockholders equity? ** Answ** a statement that reflects
the changes in equity for the owners interest for a period of time and ending the balance
at a point in time
Statement of stock holders equity reports what three parts? ** Answ** 1. changes in
paid in capital from issuance of new shares of stock (when a company sells stock)
2. changes in treasury stock transactions (repurchases stock)
3. changes in retained earnings (increase/decrease) based on a net income or a net
loss
how do you calculate equity? ** Answ** assets - liabilities = equity
why is this statement needed? ** Answ** so that stockholders can see how their
equity has changed over a period ( how it has increased or decreased)
a corporation is a _______________ entity organized under a ____________ charter
** Answ** legal
state ( or article of incorporation)
Corporations are more ___________ and __________________ to form compared to
other forms of business such as sole proprietorships and partnerships ** Answ**
costly
complex
a corporation is considered a _______________ entity from its _________ ( not a pass-
through entity) ** Answ** seperate
owners
what are two types of corporations? ** Answ** public and private
what does it mean if a corporation is public? ** Answ** stock is publicly traded on a
stock exchange
what does it mean if a corporation is private? ** Answ** stock is privately traded
what is the advantage to a corporation? ** Answ** it has access to greater amounts
of capital than a sole proprietor or partnership
Disadvantages of a corporation ** Answ** owners pay taxes on dividends received
from the corporation even though the corporation pays taxes on the income it earns
, what is it called when in a corporation owners pay taxes on dividends received from the
corporation even though the corporation pays taxes on the income it earns? ** Answ**
double taxation
what is a stockholder? ** Answ** someone who owns shares of stock in a company
(buying ownership into that company)
what 5 rights do stockholders have? ** Answ** 1. the right to vote on corporate
matters (if common stock)
2. right to participate in profits (dividends)
3. right to residual assets after creditors (assets - liabilities= equity)
4. preemptive right to purchase of new issues of shares
5. Have limited liability- loss up to stock investment
what are the two categories of capital that a company has access to? ** Answ** 1.
paid in (or contributed) capital
2. earned capital that is retained by a company
what is paid- in capital ** Answ** dollars that the company has received in exchange
for stock
what is earned capital and what is it also called ** Answ** the accumulated net
income from operating the business that is not distributed to stockholders as dividends
retained earnings
how does a company receive capital? ** Answ** at its initial issuance of stock to the
public
and re-sales of its own stock (treasury stock) that the company purchased from the
exchange
what are the two types of stock? ** Answ** 1. common stock
2. preferred stock
common stock has.... ** Answ** has voting rights, higher risk because they are paid
last in dissolution, no guaranteed dividends
preferred stock has.. ** Answ** has special privileges, no voting rights, usually offers
guaranteed dividends
Authorized Shares ** Answ** shares that are legally available for sale (set in the
companies charter)
Issued shares ** Answ** shares that have been sold
