FAR Area II (Balance Sheet): Equity — Contributed Capital, Retained Earnings, AOCI, and Treasury Stock

Equity

The residual interest in a company’s assets after deducting liabilities.

Formula for Equity

Equity = Assets - Liabilities.

Contributed Capital

Amounts paid in by owners including common stock and additional paid-in capital.

Retained Earnings

Cumulative earned capital kept in the business.

Accumulated Other Comprehensive Income (AOCI)

Cumulative OCI items that bypass net income.

Treasury Stock

Company’s own shares repurchased, counted as contra-equity.

Par Value

Nominal per-share amount assigned in the corporate charter.

Common Stock

Equity ownership in a corporation, counted at par or stated value.

Preferred Stock

Equity that has preferences over common stock, often with fixed dividends.

Additional Paid-in Capital (APIC)

Contributions above par or stated value received from shareholders.

Cumulative Preferred Stock

Preferred stock where skipped dividends accumulate as dividends in arrears.

Dividends in Arrears

Unpaid dividends on cumulative preferred stock not recorded as liabilities until declared.

Outstanding Shares

Total shares currently held by investors, calculated as Issued - Treasury.

Stock Dividend

Distribution of additional shares to existing shareholders, affecting retained earnings.

Common Stock Basics

Authorized, Issued, and Outstanding are key metrics in understanding stock.

Retained Earnings Formula

Ending RE = Beginning RE + Net Income - Dividends Declared.

Declaration Date

Date when a dividend becomes a legal obligation, affecting retained earnings.

Dividends Payable

Liability created when dividends are declared by the board.

Cost Method of Treasury Stock

Treasury stock is recorded at the amount paid to repurchase shares.

APIC—Treasury Stock

Equity account credited for excess when treasury stock is reissued above cost.

Stock Split

Increase in the number of shares outstanding without changing total company value.

Error Correction (Retrospective)

Typically recorded as adjustments to beginning retained earnings.

Noncontrolling Interest (NCI)

The portion of a subsidiary's net assets attributable to outside shareholders.

Comprehensive Income

Net income plus other comprehensive income (OCI).

Statement of Changes in Equity

Reconciles beginning-to-ending balances for each equity component.

Dividends in Arrears Disclosure

Cumulative unpaid dividends on preferred stock that must be disclosed.

Mandatory Redemption of Preferred Stock

Preferred stock that must be redeemed for cash, often classified as a liability.

Other Comprehensive Income (OCI)

Certain gains and losses excluded from net income; cumulative in AOCI.