Week 14 — Stockholders' Equity

Why this matters

Whether you sell shares in a small software firm, serve on the board of a cooperative grocery, or read a repair shop's balance sheet before lending it money, you need to know what the owners' claim on a business is made of.

In plain language

A corporation's owners put money into the business, and sometimes the business hands money back to them. This week you learn to record both directions. You will meet shares (the units of ownership a corporation sells), par value (a legal amount printed on each share, which is not its price), and dividends (payments the business makes to its owners out of what it has earned). You will also see what happens when a corporation buys back its own shares. By the end, you can build the part of the balance sheet that shows what the owners' claim is made of.

• Already covered: Week 13's bonds and Week 5's statement of retained earnings.
• This week: stock issues, dividends, treasury stock, and earnings per share.
• How they connect: selling shares is the owners' alternative to borrowing.
• Where we're going next: Week 15, the statement of cash flows.

Focus

How does a corporation record the money its owners put in, and the money it hands back to them?

By the end of this module, you should be able to:

• [ ] record an issue of common stock above par
• [ ] record a cash dividend on its declaration and payment dates
• [ ] record treasury stock at cost and build the equity section
• [ ] compute basic earnings per share on weighted-average shares

To-do

Plan your week

1. Read Chapter 14 (~40–50 minutes), then the lecture and slides.
2. Work the lecture tutorial (60–90 minutes).
3. Do the practice set (15–25 minutes).
4. Do the Accounting Workshop (about 90 minutes), the discussion, and the assignment.
5. Take the quiz.

This week's checkpoint: build the bicycle shop's Year 2 statement of stockholders' equity and show that it ties to the $140,000 equity section.

You've got this

Take it in order, and ask your instructor if a step snags.

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