Financial accounting Reflection

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Reflection Paper III

“There are no secrets to success. It is the result ofpreparation, hard work and learningfrom

failure.

“–Collin

Powell

In Chapter 18, we learnt about Shareholder’s Equity, which is comprised of paid-in capital

(amount invested by shareholders), retained earnings (amount earned by corporation) and

accumulated other comprehensive income (other gains and losses not included in net income).

There are two basic types of capital stock: common and preferred (cumulative or

noncumulative). In this chapter, we also focused on share buypacks, accounting for retired shares

and reporting treasury stock. Although the most common type of dividend distribution is in the

form of cash, I learnt that there are a number of alternative forms of distribution such as property

dividends and stock dividends. It is important for accountants to remember that when there is a

stock dividend, all stockholders retain the same percentage ownership as they had before the

stock dividend. Furthermore, two reasons for companies issuing stock dividends include

reducing the market price per share of stock so that it can be cheaper for investors to purchase

and reducing the balance in retained earnings.

In Chapter 19, we focused on Share Based Compensation and Earnings per Share. A

dilutive security occurs when if converted the earnings per share decreases because the number

of shares outstanding increases. In class, we practiced calculations for the basic earnings per share

and the diluted earnings per share. The basic EPS f01mula is net income less preferred dividends

divided by the weighted average of common shares outstanding. On the contrary, the diluted

earnings per shares takes into consideration the impact of all the dilutive securities. When the basic

and diluted earnings per share are included in the financial statements, it gives users an idea of the

current earnings per share and under the worst scenario what earnings per share would be if all the

dilutive securities had been converted into common stock.

In Chapter 20, we focused on Accounting Changes and Error Corrections. Basically,

there are two kinds of accounting changes. Each kind of accounting change is handled differently

for accounting purposes. Change in accounting estimates usually occur when new information is