Chapter 13: 7RQ (page 707)
What are the two basic sources of stockholders’ equity? Describe each source.
Short Answer
Expert verified
The two primary sources of stockholders' equity are retained earnings and paid-in capital.
Step by step solution
01
Introduction to the topic
Shareholders' equity or net worth represents how much the owners of a company have invested in the business, either by investing in the business or by cumulative retaining earnings.
It includes, Common stock, preferred stock, retained earnings, additional paid-in capital, and the accumulated other comprehensive income.
02
The two basic sources of stockholders’ equity
The primary structure block of stockholders' equity is paid-in capital. Another major source of stockholders' equity is accumulated retained earnings. The principal source of Paid-in capital is Contributed Capital or Common stock, which addresses amounts received from stockholders in exchange for capital at par value and excess of par value.
Retained earnings are the profit that remained with a corporation after paying all its direct costs, indirect costs, income taxes, and declared dividends to the shareholders.
Most popular questions from this chapter
Journalizing issuance of stock and preparing the stockholders’ equity section of the balance sheet
The charter for ASAP-TV, Inc. authorizes the company to issue 100,000 shares of \(5, no-par preferred stock and 500,000 shares of common stock with \)1 par value. During its start-up phase, ASAP-TV completed the following transactions:
Sep. 6 Issued 550 shares of common stock to the promoters who organized the corporation, receiving cash of \(16,500.
12 Issued 400 shares of preferred stock for cash of \)23,000.
14 Issued 1,500 shares of common stock in exchange for land with a market value of $17,000.
Requirements
1. Record the transactions in the general journal.
How does authorized stock differ from ouststanding stock?
Identifying advantages and disadvantages of a corporation
Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.
d. Stockholders’ liability is limited.
What are the three relevant dates involving cash dividends? Describe each.
Preparing a corporate income statement
ABC Corporation’s accounting records include the following items, listed in no particular order, at December 31, 2018:
Other Income and (Expenses) \( (7,200) Cost of Goods Sold \) 30,000
Net Sales 81,000 Operating Expenses 25,000
Gain on Discontinued Operations 3,600
The income tax rate for ABC Corporation is 39%.
Prepare ABC’s income statement for the year ended December 31, 2018. Omit earnings per share. Use the multi-step format.
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