FAR, Financial Accounting and Reporting
Sources for Equity
Last reviewed
The standards and authorities behind PocketCPA's FAR lessons on Equity. The topic rests on ASC 505.
About this topic
Equity is what is left of a company for its owners once everything it owes has been settled. ASC 505 governs how a company records transactions in its own shares.
More formally, equity, sometimes referred to as net assets, is the residual interest in an entity's assets that remains after deducting its liabilities (ASC 505-10-05-3). For a corporation that residual is carved into several distinct accounts.
Key points
- Treasury stock under the cost method is recorded at the reacquisition cost and reduces total stockholders' equity.
- Retained earnings cannot go negative from treasury stock transactions; excess reduces additional paid-in capital, then retained earnings.
- A stock dividend transfers retained earnings to common stock and additional paid-in capital at fair value (small) or par (large).
- A stock split changes the par value per share and increases shares outstanding but does not affect total equity.
What the lessons cover
- The components of stockholders' equity
- Issuing stock: par, stated value, and no-par (ASC 505-10-25-1)
- Treasury stock: the cost method (ASC 505-30)
- Treasury stock: the par-value method (ASC 505-30-30)
- Retained earnings
- Dividend dates: declaration, record, and payment
- Cash and property dividends
- Stock dividends: small versus large (ASC 505-20-30-3)
- Stock splits (ASC 505-20-25-2)
- Accumulated other comprehensive income
- Presentation and disclosure (ASC 505-10-50-2)
Authoritative references
- ASC 505-10-05-1 and 05-3, the makeup of the Topic and the definition of equity as the residual interest in an entity's assets after deducting its liabilities.
- ASC 505-10-25-1, issuing stock at par, stated value, or no-par.
- ASC 505-10-50, disclosure of restrictions on retained earnings, including those imposed by loan covenants.
- ASC 505-10-50-2 and 50-3, presentation and disclosure, including a summary of the rights and privileges of the securities outstanding.
- ASC 505-10-50-4 and 50-5, preferred stock whose involuntary liquidation preference exceeds its par or stated value, and disclosure of dividends in arrears in total and per share.
- ASC 505-20-25-2, stock splits.
- ASC 505-20-30-3, stock dividends, small versus large.
- ASC 505-30, treasury stock under the cost method.
- ASC 505-30-30, treasury stock under the par-value method, including the retirement of the shares at 30-8 through 30-10.
- ASC 505-30-30-8, an excess of cost over par that may be charged entirely to retained earnings.
- ASC 505-30-30-9 and 30-10, an excess of par over cost credited to additional paid-in capital, never to income, with the difference handled entirely within equity.
- ASC 505-30-45-1, presentation of treasury stock as a contra-equity deduction from total stockholders' equity.
Related requirements outside the Topic:
- Share-based payment, measured at grant-date fair value, ASC 718-10-30-2.
- Assets received in exchange for equity, ASC 805-50-30-2.
- Nonmonetary transactions, ASC 845-10-30.
- Subsequent events, ASC 855-10-25-3.
- Earnings per share, ASC 260.
How PocketCPA uses these sources
Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.