Chapter 18: Shareholders' Equity

What two attributes of other comprehensive income do companies report in the financial statements?

1. Components of comprehensive income created during the reporting period. 2. The comprehensive income accumulated over the current and prior periods.

Define the preemptive right sometimes given to common shareholders

The right to maintain one's percentage share of ownership when new shares are issued.

In what two ways may a company report comprehensive income for a period?

a. An expanded version of the income statement. b. A separate statement immediately following the income statement.

What is the purpose of the statement of shareholders' equity?

Disclose the sources of the changes in Shareholders Equity accounts.

"Comprehensive income provides a more expansive view of the change in shareholders' equity than does traditional net income." What is comprehensive income?

It is the total nonowner change in equity for a reporting period.

Where in the balance sheet must a corporation report mandatorily redeemable preferred stock?

Mandatorily redeemable preferred stock (preference shares) is reported as debt with the dividends reported in the income statement as interest expense using Both U.S. GAAP and IFRS.

What are the four classifications within shareholders' equity?

Paid-in capital, retained earnings, accumulated other comprehensive income, and treasury stock.

How do share issue costs affect the amount of additional paid in capital recorded for an issuance of stock?

Reduces the net cash proceeds from selling the shares and thus paid-in capital -excess of par.

What is accumulated other comprehensive income?

Represent the cumulative sum of the changes in each component created during each reporting period throughout all prior years.

The book describes shareholders' equity as a residual amount. What does this mean?

Whats left over after creditor claims have been subtracted from assets. (Net assets)

What ownership rights do common shareholders have, unless specifically withheld by agreement with the shareholders?

a. The right to vote on matters that come before the shareholders, included the election of corporate directors. Ear share represents once vote. b. The right to share in profits when dividends are declared. The percentage of shares owned by a shareholder determines his/her share of dividends distributed. c. The right to share in the distribution of assets if the company is liquidated. The percentage of share owned by a shareholder determines his/her share of assets after creditors and preferred shareholders are paid.

What special rights do companies usually give to preferred shareholders?

A right, sometimes given to preferred shareholders, which allows them (under certain circumstances) to return their stock to the corporation for a predetermined redemption price (The preferred stockholder can make the company buy back the stock). A right, sometimes given to preferred shareholders, which allows them to exchange their stock for common stock at a specified conversion ratio.

What are the two primary sources of shareholders' ownership interests in a corporation? How are they reported?

A.) 1.Amounts INVESTED by Shareholders in the coporation 2. Amounts EARNED by the corporation on behalf of it shareholders. B.) Paid-in capital under Retained earnings.