Question

The total's oweners equity is usually under a number of subcations on the corporations balance sheet.

List the major subdividsion of the stockholders equity section of a corporate balance shet, and describe breifs nature of the amounts that will appear in each section.

Explan fully the reason for sudviding the amount of stockholdersequity including legal, accounting and other considerations.

Descreibe three kinds of transactions what will result in paid in or permanent captial inexcess of legal or stated capital.

Various accounting authorities have recommended that the terms paid in surplus and earned surplus not be used in published financial statements. Expalin briefly the reason for this suggesion and idicate acceptable substitutes for the terms.

Answer 1

The “Shareholder’s Equity” section of the balance sheet has been divided into many subsection, which are :

1) Common Stock : a) Authorised share capital shown with the par value and total amount and the total is not considered while calculating the final Shareholder’s equity.

b) Issued and paid in share capital with the part value and the total value.

2) Preferred Stock : a) Authorised share capital shown with the percentage of dividend payable (whether it is cumulative or not) and par value and total amount and the total is not considered while calculating the final Shareholder’s equity.

b) Issued and paid in share capital with the percentage of dividend payable (whether it is cumulative or not) and the part value and the total value.

3) Paid in capital in excess of par of both Common Stock and the Preferred stock.

4) Retained Earnings balance as on date, duly adjusted with the dividend declared and Treasury Stock.

5) Final total of the statement which provides us with figure of Shareholder’s Equity as on balance date.

The Shareholder’s Equity section has been subdivided and explained to have clear and detailed bifurcation of the capital between the authorized, issued , paid in , additional capital paid in and legal rights of the shareholders ie. the Equity and Preferred Shareholder.

The three kinds of transactions where capital is paid in or permanent capital in-excess of legal or stated capital are:

a)Stock Option

b)Stock submitted with Government as deposit

c) Stock issued towards purchase or acquisition of fixed and non depreciating assets.

The surplus under the Shareholder’s Equity section can be gained either by issuance of shares and getting additional paid in capital over and above par value of the share. Secondly, the same can be gathered through the surplus of the Income Summary ie. the retained earnings. These terms can be named as per experts as:

1) Paid in capital in excess of par- Common Stock or Preferred Stock

2) Retained Earnings (net of all adjustments)