Understanding Equity and Accounting for Shareholder's Equity:

School: University of Michigan - Course: ACC 300 - Subject: Accounting

1 Equity ACC 300 Economics of Equity Product OperationsInvestingFinancing dividend Capital Received Portion of Value Distributed Final Value Distributed & Capital Repaid Value Created Value Created Reporting Period End End of Life This document is authorized for use byVy Dang, from 8/29/2022 to 12/19/2022, in the course: ACC 300 - Financial Accounting - Kama, Anderson, Mehta (Fall 2022), University of Michigan, Ann Arbor. Any unauthorized use or reproduction of this document is strictly prohibited*.

2 Authorized, Issued, and Outstanding Shares •A company must report the following about its shares: 1.Authorized Shares ‒Maximum number of shares that can be sold to the public ‒Number is designated in the company's corporate charter 2.Issued Shares ‒Number of shares that has ever been issued to the public 3.Outstanding shares ‒Shares that are currently held by the public Accounting for Shareholder's Equity It is assumed that financial interactions with owners cannot create any gain or loss of value for the firm Contributed CapitalRetained Earnings •Amounts paid to thecompany by shareholders •Represents "investment"shareholders directlyplaced into the firm•The sum of net income of the life of the firm less any amounts paid out to the shareholders •Represents the amount of lifetimeearningsthat has beenretainedby the firm. This document is authorized for use byVy Dang, from 8/29/2022 to 12/19/2022, in the course: ACC 300 - Financial Accounting - Kama, Anderson, Mehta (Fall 2022), University of Michigan, Ann Arbor. Any unauthorized use or reproduction of this document is strictly prohibited*.

3 Recording Stock Issuances 1.Par‐Value Stock‒Record only the par value inCommon Stock ‒Record amounts above par value inAdditional Paid‐In Capital 2.No Par Stock ‒Record the entire issuance price inCommon Stock CashCommon StockAPIC CashReceivedPar ValueCash Received - Par Value CashCommon Stock CashReceivedCash Received Also known asCapital In Excess of Par Dividends •Once declared, dividends become a liability of the company •Common shareholders receive dividendsonlyif they are declared by the Board of Directors •Preferred shareholders usually receive afixeddividend,stated as percentage of par value •Example: 5%, $20 par value preferred stock outstanding. What is the dividend per share? .05 x $20 = $1