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Accounting 2 - Chapter 11: Chappell discussion - Discuss how stockholder's equity is reported and analyzed...

Accounting 2 - Chapter 11: Chappell discussion - Discuss how stockholder's equity is reported and analyzed in the financial statements?

Solutions

Expert Solution

Stockholder’s equity are represented as the corporation’s owners invested money in the company. The purpose of reporting the Stockholder’s equity in the financial Statement is that it let the reader know that what amount of the assets is being financed by the owner’s fund and what by the borrowing funds.

The framework of the Shareholder’s Equity Statement is generally contains:

Common Stock – Authorised, issued & outstanding quantity @ par value

Total par Value

Preferred Stock - Authorised, issued & outstanding quantity @ par value

-do-

Additional Paid in Capital – Common Stock

Additional paid in

Additional Paid in Capital – Preferred Stock

-do-

Total capital contribution

Total of above

Add: Retained Earnings

Amount

Less: Treasury Stock

Treasury stock amount

Net Retained Earnings

+   RE amount

Total Shareholder’s Equity

Total Shareholders equity amount

The Shareholder’s equity position at a point of time can be analysed and compared with the other period or other company on the following ratios :

  1. Return on Equity = Earning per share = Net Income / Common Stock outstanding shares
  2. Average Shareholders equity = Total of opening and closing position / 2
  3. Average Common Shareholder’s equity = Total of Common stock opening and closing position/2
  4. Debt to Equity ratio = Total Debt / Total Shareholder’s Equity

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