UNDERSTANDING FINANCIAL STATEMENTS. BALANCE SHEET – Liabilities & Stockholders’ Equity. LIABILITIES.
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Unearned rent revenue
Advances from customers
(Operating leases are recorded as lease expense and no liability nor PPE are recorded)
An estimate of the obligation for paying medical insurance premiums or medical expenses of retired employees and spouses.
These future benefits are accrued as the employees are working for the company.
If the loss is probable, then record the liability and loss and disclose in a footnote. If the loss is not estimable, then do not record the liability and loss, but must disclose in a footnote.
If the loss reasonably possible, then do not record the liability and loss, but must disclose in a footnote.
If remote, then do not record, must not disclose.
d.Corporations report stockholders’ equity, including contributed capital and retained earnings.
Common stock, at par value
Additional Paid-in Capital (also called Paid-in Capital in Excess of Par)
Accumulated Other Comprehensive Income
Less: Treasury Stock (at cost)
Total Stockholders’ Equity
But over the company’s lifetime the common stock dividends should be higher than the preferred stock dividends
To distribute the stock to employees under stock option plans or retirement plans.
To prevent a hostile takeover.
(1) At Cost Method (the amount paid to repurchase the stock is shown as a separate line item as a subtraction from stockholders’ equity)
(2) Par Value Method (the amount paid to repurchase the stock reduces Common Stock and Additional Paid-In Capital)