Wiley GAAP: Practical Implementation Guide and Workbook

Chapter 26. STOCKHOLDERS' EQUITY (ASC 505)

BACKGROUND AND INTRODUCTION

ASC 505 defines stockholders' equity as the residual interest in the assets of an entity after deducting its liabilities. Stockholders' equity is comprised of all capital contributed to the entity plus its accumulated earnings less any distributions that have been made.

ASC 505 applies to all public and nonpublic entities, unless more specific guidance for those entities is provided in other ASC topics.

DEFINITIONS OF KEY TERMS

(in accordance with ASC 505)

Additional paid-in capital. Amounts received at issuance in excess of the par or stated value of capital stock and amounts received from other transactions involving the entity's stock and/or stockholders. It is classified by source.

Outstanding stock. Stock issued by a corporation and held by shareholders (i.e., issued shares that are not held in the treasury).

Par value method. A method of accounting for treasury shares that charges the treasury stock account for the aggregate par or stated value of the shares acquired and charges the excess of the purchase cost over the par value to paid-in capital and/or retained earnings. A deficiency of purchase cost is credited to paid-in capital.

Restricted share. A share for which sale is contractually or governmentally prohibited for a specified period of time. Most grants of shares to employees are better termed nonvested shares because the limitation on sale stems solely from the forfeitability of the shares before employees ...