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

FASB Codification Topic-505 deals in stockholder’s equity which includes the complete and comprehensive details regarding stockholder’s equity like stock dividend and stock splits, Treasury Stock, Equity Based Payments to Non-Employees etc. in different sub-topics.

Topic 505-20 deals in Equity-Stock Dividends and Stock Splits:

There are various amendments in aforesaid topic and sub-topic in which the provisions of stock dividends and stock splits are discussed and when a corporate issued its own common shares to common shareholders without consideration then it is treated as stock dividend issued by the corporate to its common shareholders. This dividend is right given to the common shareholders by the corporate from the accumulated earnings of the business without distributing the cash or any other assets of the company so that it is retained in business. Even the stockholder’s interest and company’s property remains unaffected after issuing the stock dividend and proportional interest of shareholder remains unchanged.

Further, if the outstanding common share increases at the end of financial year due to stock dividend and stock split or sometimes decreases due to reverse stock split, the Earning Per Share (either Basic or Diluted) will also be changed and shall be adjusted retrospectively for all periods to show the effects due to change in capital structure. Even, if the outstanding common share changed after the end of the financial year but before issue of financial statements to shareholders then it should be changed as per latest outstanding number of common shares and it should also be disclosed that earnings per share is calculated based on the latest number of shares outstanding which is changed after the end of the financial year but before issuance of financial statements.