[Peachey]

Hi can anyone please help me with these questions. :confused:

You has an item in the statement of stockholders' equity that is Other Accumulated Comprehensive Income. What are the possible sources of other comprehensive income?
My answer--- Some of the items included in Comprehensive Income, such as Market Value Adjustments in derivatives and “Other”, are considered to be “Paper” Gains or Losses. These adjustments are Not presented on the Income Statement because they are Not realized.

Besides Net Income and Other Accumulated Comprehensive Income, what other items affected stockholders' equity during the period?
my answer---Stockholders Equity is increase by profits and the issuance of new stock. Stockholders Equity is reduced by losses, the payment of dividends and the purchase of Treasury Stock (the company's re-purchase of its own stock).

How do cash dividends affect stockholders' equity? How would a stock dividend affect stockholders' equity?

[ArcSine]

Greetings, Peachey!

I'm going to let somebody who's really up on the official GAAP / IFAS accounting rules field your first question, 'cause I'm not completely sure.

Your answer to the second one gives a good listing of those items which increase or decrease equity. But since the question asks, "Besides net income,. " I'm thinking you could probably drop "profits" and "losses" from your list.

With respect to your third question, your answer to the second one indicates you already know that cash dividends reduce equity. Stock dividends, though, are a different animal.

Equity in total is unchanged by a SD. Same amount of equity, just spread over a larger number of shares. But I believe that a SD does call for a journal entry that moves some of your Retained Earnings to Paid In Capital. Thus, no change to total equity, but a change to a couple of the components which make up equity.

As to the specifics of the JE for that intra-equity shifting required by a stock dividend, we'll need one of the accounting whizzes to weigh in.

Take care,

[morgaine300]

Hi Peachy. Just as a note, I wasn't ignoring you. Now that I've seen you post again and can click on you, I will reply by PM and explain there.

Yes, the stock dividend requires an entry. Actually, two entries, just like with a cash dividend, one on the date of declaration, and again on the date of distribution of the new stock. The ultimate effect of those entries is exactly what ArcSine said: reducing retained earnings (all dividends reduce retained earnings) and increasing the stock account. So total is the same, but it's moving from the retained earnings into the paid-in capital section.

As for the other comprehensive income... so just a few months ago you were doing bad debt and inventory, and suddenly they have you doing other comprehensive income? Wow. That's more intermediate to advanced level stuff. I don't know a great deal about it cause it wasn't done that way when I was going to school. (And in my real work I don't run across stuff like that, so it's all "textbook" to me.)

So first I'm just going to literally copy a paragraph from my intermediate text I have around. Oh, up in the descriptive area it goes into available-for-sale securities, and this is a footnote on that:
"We further discuss available-for-sale securities in Chapter 17. Additional examples of other comprehensive items are translation gains and losses on foreign currency, excess of additional pension liability over unrecognized prior service cost, and unrealized gains and losses on certain hedging transactions."

Given the level you're at, I cannot possibly imagine them expecting you to know anything about pensions or heding transactions. I would say look through the chapter (or your notes) and see what is mentioned. They obviously wanted you to learn certain things. (Unless this was meant to be researched where you would find this other stuff.)

The available-for sale gains and losses is one of the more common causes but you didn't mention it. I'm having issues with you saying these things are not recognized on the income statement because "they are not realized." That's not incorrect - just not complete. Because there are things on the income statement that aren't realized. So if unrealized items can be on an income statement, that's not really a good "because" for saying they aren't on it, right?

The general reason for things like available-for-sale gains and losses not being on the income statement is cause it can cause great volitility that really shouldn't be recognized. The last couple of years is a great example of this. If a company is holding some stocks that they bought 5 years ago, they would probably have some gain on it overall. And if they keep it another 5 or so years will probably have more gain. But in their 08 income statements, they'd have to report huge losses if they counted those unrealized losses on the income statement. It would just look ridiculous and throw everything off. And then some of those huge gains we had last year (my emerging markets fund gained like 75% - and it was behind some other ones!), and that would look ridiculous as well.

Another way to look at it is looking at Trading Securities. Those are ones they are expecting to be actively trading -- i.e. they're basically buying with the intent of selling in a shorter period. Short-term trading. ("Intent" is sometimes an important word in accounting.) If they're doing active trading, then it's considered it's a typical activity for them and that therefore the gains and losses are considered to be a normal part of active trading. Shorter-term (unrealized) gains and losses are not considered a normal part of long-term investments. They happen, but they're on "paper" as you called it and nothing actually happens if they don't sell it. So available-for-sale is an unrealized one that is not on the income statement.

Was that a little too much? :D

[Peachey]

Thank you all a lot for the explanation.