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Accounting for Equity Flashcards

Accounting for Equity Flashcards
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Elements of Stockholder Equity: Contributed Capital

This represents the aggregate value of the stocks that a company has sold directly to stockholders. It can be referred to as paid-in capital.

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Elements of Stockholder Equity: Common Stock

The kind of stock most frequently owned by shareholders. If you have this kind of stock and a company closes, you will get paid only after the creditors and holders of preferred stock.

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Elements of Stockholder Equity: Preferred Stock

This type of stock offers benefits over common stock. For example, if a company closes, you will be paid directly after the company's creditors because you have priority.

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Finding Shareholder Equity: Formula

Number of Shares Held x Price of Shares = Shareholder Equity. You can also find this by subtracting liabilities from assets.

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Your company has a net income of $10,000, $10,000 in assets, and $5,000 in liabilities. Your shareholders hold 1,000 shares worth $5 each. What is your return on equity?

Shareholder equity = 1,000 x 5 = 5,000. 10,000 / 5,000 = 2. ROE = 2.

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Return on Equity (ROE) Ratio: Formula

Return on Equity (ROE) = Net Income / Shareholder's Equity

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Return on Equity (ROE)

A measure of a company's financial state that compares equity with company profits. For example, if this is 1.2 the company earns $1.20 for every $1 a stockholder invests.

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15 cards in set

Flashcard Content Overview

Accessing this set of flashcards can give you the opportunity to review the formulas for determining shareholder equity. You'll be able to go over the factors that make up this form of equity, including:

  • Common stock
  • Preferred stock
  • Treasury stock
  • Retained earnings
  • Contributed capital

You'll also find cards that focus on determining a company's return on equity (ROE).

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Back
Return on Equity (ROE)

A measure of a company's financial state that compares equity with company profits. For example, if this is 1.2 the company earns $1.20 for every $1 a stockholder invests.

Return on Equity (ROE) Ratio: Formula

Return on Equity (ROE) = Net Income / Shareholder's Equity

Your company has a net income of $10,000, $10,000 in assets, and $5,000 in liabilities. Your shareholders hold 1,000 shares worth $5 each. What is your return on equity?

Shareholder equity = 1,000 x 5 = 5,000. 10,000 / 5,000 = 2. ROE = 2.

Finding Shareholder Equity: Formula

Number of Shares Held x Price of Shares = Shareholder Equity. You can also find this by subtracting liabilities from assets.

Elements of Stockholder Equity: Preferred Stock

This type of stock offers benefits over common stock. For example, if a company closes, you will be paid directly after the company's creditors because you have priority.

Elements of Stockholder Equity: Common Stock

The kind of stock most frequently owned by shareholders. If you have this kind of stock and a company closes, you will get paid only after the creditors and holders of preferred stock.

Elements of Stockholder Equity: Contributed Capital

This represents the aggregate value of the stocks that a company has sold directly to stockholders. It can be referred to as paid-in capital.

Elements of Stockholder Equity: Retained Earnings

You can find this by subtracting the dividends paid to stockholders from a company's net income or loss. This is the money a company earns and does not distribute.

Your company starts the year with $20,000 in retained earnings. Over the year, you get a net income of $50,000 and pay out $30,000 in dividends. You end the year with what retained earnings?

50,000 - 30,000 = 20,000. 20,000 + 20,000 = 40,000.

Elements of Stockholder Equity: Treasury Stock

Companies sell this kind of stock to stockholders and then purchase it back.

Balance Sheet

A financial document that records information about a company's liabilities, owner's equity and assets. Stockholder equity is reported on this form.

Your company has $100 in preferred stock, $50 in common stock, retained earnings of $300, paid in capital of $400 and treasury stock of $200. What is your stockholder equity?

100 + 50 + 300 + 400 - 200 = 650

Stockholder's Equity Statement

This financial document reports any shifts in the components that make up stockholder equity during a set period of time.

Your company has $10,000 in total assets. Your shareholder equity is $4,000. What are your total liabilities?

10,000 - 4,000 = 6,000 in total liabilities

Your company has $10,000 in total liabilities and a shareholder equity of $14,000. What are your total assets?

10,000 + 14,000 = 24,000 in total assets

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