Case Study : Owners ' Equity

865 Words Oct 13th, 2015 4 Pages
Owners ' Equity Paper
Introduction
According Kieso, Weygandt, and Warfield (2013), “Owners’ equity in a corporation is defined as stockholders’ equity, shareholders’ equity, or corporate capital,” and entails capital stock, additional paid-in capital and retained earnings (p. 824). This is broken down to developing an understanding between earned and paid-in capital by discussing why it is crucial to keep the two separated, the importance to an investor of either, and whether basic or diluted earnings per share is a key element.
Separation of Capital
Kieso, Weygandt, and Warfield state that capital stock and additional paid-in stock are sectioned into paid-in capital and that retained earnings make up the earned capital for a corporation (2013, p. 824). To go into a bit more detail, paid-in capital entails the total cost that is put forth by investors for a company to utilize for business activities (Kieso et. al., 2013, p. 824). On the other hand, earned capital is the profitability that results from maneuvers that a corporation is involved with and returns that are held back from being dispersed to stockholders (Kieso et. al., 2013, p. 824). It is critical to maintain a separation between paid-in and earned capital because of the difference in how each is procured or utilized within a company. Kieso, Weygandt, and Warfield (2013) state, “Stockholders’ (owners’) equity represents net contributions by stockholders plus retained earnings” (p. 825). The two capitals are also…
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