Preferred stock has characteristics of both liabilities and stockholders’ equity. Convertible bonds are another example of a financing arrangement that blurs the line between liabilities and stockholders’ equity. Items like these have led some to conclude that the present distinction between liabilities and equity should be eliminated. Under this approach, liabilities and equity would be combined into one category that includes both creditor and owner claims to resources. Required: 1. Define liabilities and stockholders’ equity. 2. Provide arguments in support of maintaining the distinction between liabilities and stockholders’ equity in the balance sheet. 3. Provide arguments in support of eliminating the distinction between liabilities and stockholders’ equity in the balance sheet. 4. Which do you recommend? Why?
Required:
1. Define liabilities and stockholders’ equity.
2. Provide arguments in support of maintaining the distinction between liabilities and stockholders’ equity in the
3. Provide arguments in support of eliminating the distinction between liabilities and stockholders’ equity in the balance sheet.
4. Which do you recommend? Why?
Here , we will discuss about liabilities and stockholders equity.
Liabilities - It can be defined as payments to be made in the future out of economic benefits that an entity has to pay to other entities as a result of past transactions or events.
Stockholders equity - It can also be called as shareholder's equity. It is the remaining amount of assets available to shareholders after all liabilities have been paid.
Stockholders equity might include common stock, paid-in capital, retained earnings and treasury stock.
2) arguments in support of maintaining the distinction between liabilities and stockholders’ equity in the balance sheet.
The balance sheet reports Direct Delivery's liabilities as of the date noted in the heading of the balance sheet whereas the third section of a corporation's balance sheet is Stockholders' Equity if the company is a corporation.
Liabilities are obligations of the company; they are amounts owed to others as of the balance sheet date whereas the amount of Stockholders' Equity is exactly the difference between the asset amounts and the liability amounts.
some examples of liabilities: the loan he received from his aunt (Notes payable or Loan Payable), the interest on the loan he owes to his aunt (Interest payable ), the amount he owes to the supply store for items purchased on credit (Accounts payable), the wages he owes an employee (Wages payable).
Within the Stockholders' Equity section you may see accounts such as Common stock, Paid in capital in excess of Par value Common stock, Preferred stock , Retained Earnings, Accumulated and other comprehensive income , Treasury Stock, and Current years net income.
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