Question

Explore the FASB Codification sections regarding stockholders’ equity. Identify one concept that you did not know prior to completing this research and share it with the class, citing the code section. Identify one question that has arisen as you have explored equity in the codification, and post this question as well. Please include proper citations in your discussion post.

Answer 1

Upon researching the FASB Codification on stockholders' equity, the distinction between contributed capital and earned capital was a key concept learned, revealing the sources of a company's equity. A question emerged regarding the implications of stock-based compensation on a firm's financial statements, particularly in terms of recognizing and measuring compensation expense and its effect on equity.

Step-by-step explanation:

While exploring the Financial Accounting Standards Board (FASB) Codification sections regarding stockholders’ equity, one concept that I found particularly insightful concerns the different categories of stockholders' equity. Specifically, the codification outlines that equity can be classified into contributed capital and earned capital, which includes retained earnings comprising of a company's cumulative net income minus any dividends declared (FASB ASC 505-10). This bifurcation helps in understanding the origins of a company’s equity, be it from initial and subsequent investments by shareholders or from the earnings retained in the business.

One question that arises while exploring equity in the codification is how stock-based compensation affects both the balance sheet and the statement of shareholders' equity, specifically in terms of the measurement and recognition of compensation expense and the corresponding increase in stockholders' equity.