Acc 423 Owners Equity

Owners’ Equity

ACC/423

April 25, 2014

Vaughn Johnson

Owners’ Equity

The investment of stockholders, corporations provide a form protection to both creditors and investors in case of liquidation or insolvency. The company will view creditors and investors separately to view the gain from selling their stock. The investor has to try to earn a profit while investing in another company and to determine the company’s financial strength. The company and the investor work together for opportunity to grow with future investments.

The common stockholders and preferred stockholders are important in a company. The stockholders are who have paid-in capital to a company to offer the investment planned to be used for operations of the company (Kimmel, 2010). Each account represents the excess paid by an investor from the par-value price for the sock issued (Kimmel, 2010). Additional paid-in-capital is also important with diluted earnings per share from the investor point of view. As for the basic earnings per share there is lack of information that allows an investor to make decisions regarding the financial strength of the business.

In owners’ equity it is importance to keep paid-in capital separate from earned capital. To keep both paid-in capital and earned capital for the investors to decide which is more profitable for the company. Paid-in capital helps determine to investors if the company meets the requirements to gain enough equity through operations and pay dividends. Paid-in capital is companies gain from equity not from the ongoing operations and paid into the par value of the stock (Stickney, 2009). It includes what is paid for capital stock plus any additional paid-in capital (Stickney, 2009).

From the investor’s point of view, it is important to earn income from operations not from the sale in stocks. The received capital of a company report in the financial statement demonstrate to the stockholders the real cost of their assets. According...