The Balance Sheet and the Statement of Changes in Stockholders’ Equity An electronic presentation by Norman Sunderman Angelo State University An electronic.
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The Balance Sheet and the Statement of
Changes in Stockholders’ Equity
An electronic presentation by Norman Sunderman Angelo State University
An electronic presentation by Norman Sunderman Angelo State University
Cash includes cash on hand and readily available in checking and
savings accounts.
Cash includes cash on hand and readily available in checking and
savings accounts.
Cash equivalents are risk-free
securities, such as money market funds
and treasury bills that will mature in three months or less from the date acquired by
the holder.
Cash equivalents are risk-free
securities, such as money market funds
and treasury bills that will mature in three months or less from the date acquired by
the holder.
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Temporary investments in
marketable securities include debt and equity
securities that are classified as “trading
securities” and “available-for-sale
securities.”
Temporary investments in
marketable securities include debt and equity
securities that are classified as “trading
securities” and “available-for-sale
securities.”
Current Assets
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Receivables include accounts receivable and notes receivable with short-term maturity dates.
They are listed at their estimated collectible amounts (net realizable values).
Receivables include accounts receivable and notes receivable with short-term maturity dates.
They are listed at their estimated collectible amounts (net realizable values).
Inventories include goods held for resale in the normal course of business plus, in the case of a
manufacturing company, raw materials and goods in process.
Inventories include goods held for resale in the normal course of business plus, in the case of a
manufacturing company, raw materials and goods in process.
Prepaid items include insurance, rent, office supplies and taxes that will not be converted into
cash but will be consumed.
Prepaid items include insurance, rent, office supplies and taxes that will not be converted into
cash but will be consumed.
Current Assets
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Current Liabilities
Current liabilities are those obligations whose liquidation is expected to require the use of existing current assets, or the
creation of other current liabilities.
Current liabilities are those obligations whose liquidation is expected to require the use of existing current assets, or the
creation of other current liabilities.
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1. Obligations for items that have entered into the operating cycle (accounts payable and salaries payable).
2. Advance collections for the future delivery of goods or performances of service (unearned rent and unearned ticket sales).
3. Other obligations that will be paid within one year or the operating cycle (estimated liabilities for short-term product warranties).
Current Liabilities
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Current Assets
Current Liabilities
= Working Capital
Working Capital
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Long-Term Investments
Investment items that management expects to hold for more than one year
or the operating cycle, whichever is longer, are classified as long-term
(noncurrent) investments.
Investment items that management expects to hold for more than one year
or the operating cycle, whichever is longer, are classified as long-term
(noncurrent) investments.
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The company expects the market value of the investment to increase.
The company wishes to receive income from interest or dividends.
The company may desire to exercise control over another company or a supplier.
The company may acquire property, plant, or equipment for future expansion.
A company makes investments for a variety of reasons.
Long-Term Investments
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Property, plant, and equipment includes the tangible assets used in the firm’s operations.
Also called fixed Also called fixed assetsassets
Also called fixed Also called fixed assetsassets
Plant Assets
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Plant Assets
Land
Buildings
Equipment
Furniture
Natural Resources
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Intangible AssetsIntangible assets are those noncurrent economic resources that are used in the operations of the business but have no
physical existence.
Intangible assets are those noncurrent economic resources that are used in the operations of the business but have no
physical existence.
Patents Copyrights Franchises
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Intangible AssetsIntangible assets are those noncurrent economic resources that are used in the operations of the business but have no
physical existence.
Intangible assets are those noncurrent economic resources that are used in the operations of the business but have no
physical existence.
Trademarks® a registered
trademarkComputer
software costs Goodwill
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Other AssetsOther Assets
The Other Assets section occasionally is used to report
miscellaneous assets that may not be readily classified
within one of the previous sections.
The Other Assets section occasionally is used to report
miscellaneous assets that may not be readily classified
within one of the previous sections.
Sometimes referred to as “deferred charges”Sometimes referred to as “deferred charges”
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Long-Term Liabilities
Long-term liabilities are those obligations that are not expected to require the use of current assets or not expected
to create current liabilities within one year or the normal
operating cycle (if longer than a year).
Long-term liabilities are those obligations that are not expected to require the use of current assets or not expected
to create current liabilities within one year or the normal
operating cycle (if longer than a year).
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Stockholders’ Equity
Stockholders’ equity is the residual interest of the
stockholders in the assets of the corporation.
Stockholders’ equity is the residual interest of the
stockholders in the assets of the corporation.
A sole proprietorship is a single-owner
company.
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Stockholders’ Equity
Stockholders’ equity is the residual interest of the
stockholders in the assets of the corporation.
Stockholders’ equity is the residual interest of the
stockholders in the assets of the corporation.
A partnership involves two or more persons who have agreed to combine their capital and efforts
in the operations of a company.
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Stockholders’ Equity
Stockholders’ equity is the residual interest of the
stockholders in the assets of the corporation.
Stockholders’ equity is the residual interest of the
stockholders in the assets of the corporation.
The corporation is a complex business
organization. Usually there is absentee
ownership.
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Contributed capital Retained earnings Accumulated other
comprehensive income
Components of Stockholders’ EquityComponents of Stockholders’ EquityComponents of Stockholders’ EquityComponents of Stockholders’ Equity
Stockholders’ Equity
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Legal capital is the minimum amount of
stockholders’ equity that the corporation may not distribute as dividends.
Legal capital is the minimum amount of
stockholders’ equity that the corporation may not distribute as dividends.
Preferred stock receives preference
in declared dividends.
Preferred stock receives preference
in declared dividends.
Common stock carries the right to vote
at the annual stockholders’ meeting
and to share in residual profits.
Common stock carries the right to vote
at the annual stockholders’ meeting
and to share in residual profits.
Contributed CapitalContributed CapitalContributed CapitalContributed Capital
Stockholders’ Equity
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A corporation sells 100 shares of its $5 par common stock for $30 per share.
A corporation sells 100 shares of its $5 par common stock for $30 per share.
Cash 3,000Common Stock, $5 par 500Additional Paid-in Capital on Common Stock 2,500
Contributed CapitalContributed CapitalContributed CapitalContributed Capital
Stockholders’ Equity
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A corporation sells 20 shares of its $100 par preferred stock for $110 per share.
A corporation sells 20 shares of its $100 par preferred stock for $110 per share.
Cash 2,200Preferred Stock, $100 par 2,000Additional Paid-in Capital on Preferred Stock 200
Contributed CapitalContributed CapitalContributed CapitalContributed Capital
Stockholders’ Equity
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A corporation sells 100 shares of its no-par common stock at $50 per share.
A corporation sells 100 shares of its no-par common stock at $50 per share.
Cash 5,000Common Stock--No-Par Value 5,000
Contributed CapitalContributed CapitalContributed CapitalContributed Capital
Stockholders’ Equity
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Retained earnings is the total amount of corporate net income that has not been
distributed to stockholders as dividends.
Retained earnings is the total amount of corporate net income that has not been
distributed to stockholders as dividends.
Uses of net incomeUses of net incomeTo use in daily operationsTo maintain its productive facilities
For growth
Stockholders’ Equity
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1. Unrealized increases (gains) or decreases (losses) in the market value of investments in available-for-sale securities.
2. Transaction adjustments from converting the financial statements of a company’s foreign operations into U. S. dollars.
3. Certain gains and losses on “derivative” financial instruments.
4. Certain pension liability adjustments.
Comprehensive income includes both net income and other comprehensive income. Accumulated other comprehensive income might include four items:
Comprehensive income includes both net income and other comprehensive income. Accumulated other comprehensive income might include four items:
Stockholders’ Equity
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Stockholders’ Equity
A company is required to report its total
comprehensive income for the accounting period.
A company is required to report its total
comprehensive income for the accounting period.
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If a corporation has more than one item of other comprehensive income, it may report the amount
of each item in stockholders’ equity.
If a corporation has more than one item of other comprehensive income, it may report the amount
of each item in stockholders’ equity.
Stockholders’ Equity
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Or, it may report the total amount of accumulated other
comprehensive income for all the items in stockholders’ equity.
This approach requires a note to the statements.
Or, it may report the total amount of accumulated other
comprehensive income for all the items in stockholders’ equity.
This approach requires a note to the statements.
Stockholders’ Equity
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Statement of Changes in Stockholders’ Equity
A corporation must disclose the changes in its stockholders’
equity account when issuing financial statements.
A corporation must disclose the changes in its stockholders’
equity account when issuing financial statements.
This statement should show investments by and
distributions to owners during the period, among other items.
This statement should show investments by and
distributions to owners during the period, among other items.
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FASB Statement of Concepts No. 6 defined investments by owners and distributions to owners, as follows: Investments by owners are increases in the
equity of a company resulting from transfers of something valuable to the company from other entities in order to obtain or increase ownership interests.
Distributions to owners are decreases in the equity of a company caused by transferring assets, rendering services, or incurring liabilities to owners.
Statement of Changes in Stockholders’ Equity
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Summary of Accounting Policies
A selection from existing acceptable alternatives.
Principles and methods peculiar to the industry in which the company operates.
Unusual or innovative applications of GAAP.
APB Opinion No. 22 requires that a company include a description of all significant accounting
policies as an integral part of its financial statements.
APB Opinion No. 22 requires that a company include a description of all significant accounting
policies as an integral part of its financial statements.
In particular, when these principles and methods involve--
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FASB Statement No. 107 requires a company to disclose the fair value of all its financial instruments, whether recognized or not on its balance sheet. The Statement
also requires a company to disclose all significant concentrations of credit risk
due to its financial instruments. A company typically makes these
disclosures in the notes to its financial statements.
Derivative Financial Instruments
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Derivative Financial Instruments
FASB Statement No. 133 requires a company to recognize all derivative financial instruments as
either assets or liabilities on the balance sheet.
FASB Statement No. 133 requires a company to recognize all derivative financial instruments as
either assets or liabilities on the balance sheet.
These instruments should be These instruments should be measured at fair value.measured at fair value.
These instruments should be These instruments should be measured at fair value.measured at fair value.
Fair value is the Fair value is the amount at which amount at which the instrument the instrument
could be could be purchased or purchased or
sold in a current sold in a current transaction transaction
between willing between willing parties.parties.
Fair value is the Fair value is the amount at which amount at which the instrument the instrument
could be could be purchased or purchased or
sold in a current sold in a current transaction transaction
between willing between willing parties.parties.
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1. The type of derivative instruments it holds.
2. Its objectives in holding the instruments.3. Its strategies for achieving these
objectives.
1. The type of derivative instruments it holds.
2. Its objectives in holding the instruments.3. Its strategies for achieving these
objectives.
FASB Statement No. 133 also requires the following information:
Derivative Financial Instruments
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Loss
Probable (?)
Reasonably estimated (?)
No
No
or
Disclosure
and
Yes
YesReport amount
in financial statements
Reasonably possibleDisclose in notes to the financial
statements
Contingent Liabilities and Assets
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Subsequent Events
A subsequent event is one that occurs between the balance sheet date and the date of issuance of the annual report.
A subsequent event is one that occurs between the balance sheet date and the date of issuance of the annual report.
End of Accounting Period
Annual Report Publication Date
Subsequent Events
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Chapter4
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