PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACnthia J. !oone, Ph.D., CPACopyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Chapter 18Shareholders Equity18-2The Nature of Shareholders Equity Assets Liabilities = Shareholders Equity Shareholders EquityPaid-in CapitalRetained EarningsAmounts earnedby corporationAmounts investedby shareholdersAccumulated OtherComprehensive IncomeOther gains and losses not included in net incomeSources ofShareholdersEquityNet Assets18-3Financial Reporting Overview18-4Accumulated OtherComprehensive Incomeeferred gains !losses" from derivatives# eferred gains !losses" from derivatives# $ains !losses" from and amendments to postretirement bene%t plans#$ains !losses" from and amendments to postretirement bene%t plans#$ains !losses" from foreign currency translations#$ains !losses" from foreign currency translations#Net holding gains !losses" on investments#Net holding gains !losses" on investments#Accumulated other comprehensiveAccumulated other comprehensive income includes four types of gains andincome includes four types of gains and losses losses not included in net income# not included in net income#Accumulated other comprehensiveAccumulated other comprehensive income includes four types of gains andincome includes four types of gains and losses losses not included in net income# not included in net income#18-&here are ' options for reporting comprehensive income created during the reporting period#&here are ' options for reporting comprehensive income created during the reporting period#&he accumulated amount of comprehensive income is reported as a separate item of shareholders equity in the balance sheet#&he accumulated amount of comprehensive income is reported as a separate item of shareholders equity in the balance sheet#As an additional section of the income statement#As an additional section of the income statement#As a separate statement immediately follo(ing the income statementAs a separate statement immediately follo(ing the income statementAccumulated OtherComprehensive Income)omprehensive income is reported periodically)omprehensive income is reported periodically as it is created and also is reported as aas it is created and also is reported as a cumulative amount#cumulative amount# )omprehensive income is reported periodically)omprehensive income is reported periodically as it is created and also is reported as aas it is created and also is reported as a cumulative amount#cumulative amount# 18-!U.S. GAAP vs. IFRSCapital stoc"#Common stoc"$Pre%erred stoc"$Paid&in capital'e(cess o%par) common$Paid&in capital'e(cess o%par) pre%erred$*hare capital#Ordinar+ shares$Pre%erence shares$*hare premium) ordinar+shares$*hare premium) pre%erence shares$ ,erminolog+ -i.erences18-/U.S. GAAP vs. IFRSAccumulated other comprehensive income#0et gains 1losses2 on investment 3 AOCI$0et gains 1losses2 %oreign currenc+ translation 'AOCI$4air value ad5ustments not permitted$ Retained earnings$,otal shareholders6 e7uit+$Presented a%ter lia8ilitiesReserves#Investment revaluation reserve$,ranslation reserve$Revaluation reserve$Retained earnings$,otal e7uit+$O%ten presented 8e%ore lia8ilities$,erminolog+ -i.erences18-8The Corporate Organization)ontinuouse*istenceEasy o(nership transferLimitedliabilityEasy toraise capitalAdvantages of a corporationisadvantages of a corporationoubleta*ation$overnmentregulation18-9Types of Corporations+ublicly,held corporations(hose shares are (idelyo(ned by the general public#+rivately,held corporations(hose shares are o(ned by only a fe( individuals#Not,for,pro%t corporations includehospitals- charities- and governmentagencies such as ./)#18-1:Hybrid OrganizationsS )orporation;imited lia8ilit+ protection o% a corporation$ oard o% directors elected 8+ shareholders$*hares o% stoc" issued$*tate issues a corporate charter$)orporate)harter 0ature and location o% 8usiness activities$ 0um8er and classes o% shares authoriAed$18-12Fundamental Share Rights0ight to sharein distribution ofassets if companyis liquidated#0ight to sharein pro%ts (hendividends aredeclared#0ight to vote#Preemptiveright to maintainpercentageownership.18-13/ssued shares are authori1ed shares of stoc2 that have been sold#3nissued shares are authori1ed shares of stoc2 that never havebeen sold#Authori1ed shares are the ma*imumnumber of shares of capital stoc2 thatcan be sold to the public#Authorized, Issued, andOutstanding Shares18-14Authori1edShares3nissuedShares&reasurySharesOutstandingShares0etiredSharesAuthorized, Issued, andOutstanding Shares18-1Capital Stock+ar value stoc2ollar amount per share is stated in the corporate charter#+ar value has no relationship to mar2et value#No,par stoc2ollar amount per share is not designated in corporate charter#)orporations can assign a stated value per share !treated as if par value"#;egal capital is $ $ $,he portion o% shareholders6 e7uit+ that must 8e contri8uted to the @rm =hen stoc" is issued$,he amount o% capital) re7uired 8+ state la=) that must remain invested in the 8usiness$ Re%ers to par value) stated value) or %ull amount paid %or no-par stoc"$18-1!Capital Stock)ommon stoc2 is the basic voting stoc2 of the corporation# /t ran2s after preferred stoc2 for dividend and liquidation distribution# ividends are determined by the board of directors#ividend and liquidation ividend and liquidation preference over preference overcommon stoc2# common stoc2#$enerally does not $enerally does nothave voting rights# have voting rights#3sually has a 3sually has apar or stated value# par or stated value#4ay be convertible- 4ay be convertible-callable- and5or callable- and5orredeemable# redeemable#+referredStoc218-1/Preferred Stock DividendsAre usuall+ stated as a percentage o% the par or stated value$