Respond To One Or More Questions From Each Of The Thr 288688

Respond To One Or More Questions From Each Of The Three Categories B

Respond to one or more question(s) from each of the three categories below. Category: Capital stock 1. Describe the composition of your corporation's contributed capital [Hint: contributed capital includes common and preferred stock plus any paid in capital in excess of par (or stated value)]. 2. Describe any other accounts reported in the Stockholder's Equity section of the Balance Sheet. 3. Discuss Treasury Stock transactions during the current year, if any. Category: Retained Earnings 1. Use the following equation and show how the Retained Earnings account has changed during the year. [Hint: the beginning balance of Retained Earnings is also equal to the ending balance of Retained Earnings in the prior year.] Retained earnings, beginning balance + Net Income - Dividends = Retained earnings, ending balance [Note: if the Statement of Stockholder's Equity shows other accounts in the computation of Retained Earnings, please ask the professor for guidance] Category: Analysis 1. Calculate the following ratios for the most current year and comment on the results of your ratio analysis. a. Return on stockholder's equity b. Earnings per share

Paper For Above instruction

The preparation and analysis of financial statements are fundamental to assessing a corporation's financial health and guiding investor decision-making. This paper addresses three key areas: the composition of contributed capital, the changes in retained earnings, and financial ratio analysis, specifically return on stockholders' equity and earnings per share. Each section provides a detailed exploration aligned with standard accounting principles and financial analysis practices.

Capital Stock: Composition and Transactions

Contributed capital forms the backbone of a company's equity financing and comprises various components, including common stock, preferred stock, and additional paid-in capital (capital in excess of par or stated value). In our corporation's case, the total contributed capital reflects both the nominal value of issued shares and the premiums received over the par value, which are recorded separately in the equity section of the balance sheet. For example, if the company issued 10,000 shares of common stock with a par value of $1 and received $15 per share, the common stock account would increase by $10,000, and the additional paid-in capital would increase by $140,000.

Other accounts reported in the stockholders' equity section may include accumulated other comprehensive income, treasury stock, and certain reserves. Accumulated other comprehensive income represents unrealized gains or losses on certain investments and hedging activities, whereas treasury stock accounts for shares repurchased by the company. Treasury stock transactions during the current year involve buybacks or reissues, which impact total shareholders' equity—buybacks decrease equity, while reissuance can either increase or decrease it depending on the reissue price.

Retained Earnings: Calculation and Changes During the Year

Retained earnings reflect the cumulative net income of the company that has not been distributed as dividends. The change in retained earnings during the year can be exemplified using the basic equation:

Beginning Retained Earnings + Net Income – Dividends = Ending Retained Earnings.

If the beginning balance of retained earnings is $500,000, net income for the year is $120,000, and dividends paid amount to $50,000, then the ending balance would be:

$500,000 + $120,000 – $50,000 = $570,000.

This calculation demonstrates the direct impact of net income and dividends on retained earnings, with the balance carried forward to the next period. Should the statement of stockholders' equity incorporate other accounts, such as adjustments for prior period errors or changes in accounting policy, these would modify the basic calculation and should be clarified with additional information from the company's financial statements.

Financial Ratio Analysis: Return on Equity and Earnings Per Share

The financial ratios—return on stockholders' equity (ROE) and earnings per share (EPS)—serve as vital indicators of profitability and shareholder value. Calculating and interpreting these ratios is essential for comprehensive financial analysis.

Return on Stockholders' Equity (ROE)

ROE measures how effectively management uses equity capital to generate profit. It is calculated as:

Net Income / Average Shareholders' Equity

Assuming net income for the most recent year is $200,000 and average shareholders' equity is $1,000,000, ROE would be:

200,000 / 1,000,000 = 0.20 or 20%.

A higher ROE indicates efficient use of equity capital, but it must be analyzed in conjunction with industry standards and company risk factors.

Earnings Per Share (EPS)

EPS indicates the amount of net income attributed to each share of common stock, calculated as:

Net Income / Weighted Average Shares Outstanding

If net income is $200,000 and the weighted average number of common shares outstanding is 50,000, then EPS would be:

200,000 / 50,000 = $4 per share.

EPS is a critical metric for investors assessing profitability and comparing companies within an industry.

Conclusion

The detailed analysis of contributed capital, retained earnings, and financial ratios paints a comprehensive picture of a corporation’s financial stability and performance. Proper understanding and interpretation of these components not only aid internal management decisions but also inform external stakeholders and investors. Regular review and accurate reporting ensure sustained financial health and transparency, vital for the company’s long-term success.

References

• Brigham, E. F., & Ehrhardt, M. C. (2016). Financial Management: Theory & Practice. Cengage Learning.
• Ellis, S. (2020). Financial Accounting. Pearson.
• White, G. I., Sondhi, A. C., & Fried, D. (2003). The Analysis and Use of Financial Statements. John Wiley & Sons.
• Gibson, C. H. (2018). Financial Reporting & Analysis. Cengage Learning.
• Higgins, R. C. (2012). Analysis for Financial Management. McGraw-Hill Education.
• Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
• Fraser, L. M., & Ormiston, A. (2016). Understanding Financial Statements. Pearson.
• Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis. McGraw-Hill Education.
• Revsine, L., Collins, D., Johnson, W., & Mittelstaedt, F. (2014). Financial Reporting & Analysis. Pearson.
• Damodaran, A. (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset. Wiley.