The book value of equity represents the amount of a business which is available for the distribution to the stockholders. The total book value of equity needs to be allocated to preferred stockholders before common stockholders.
Stock options are a form of equity based compensation. When a business purchases the services of key personnel and pays for those services using stock options, it must record the expense in the income statement over the vesting period using stock based compensation accounting journal entries.
What is preferred stock ? Preferred stock is a type of equity which gives stockholders additional benefits (preferences). The main benefit is that the preference stockholders are entitled to dividends and repayment of their investment on liquidation before any payments are made to common stockholders.
The preferred stock journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of preferred stock transactions.
In each case the journal entries show the debit and credit account together with a brief narrative.
The present value of a growing perpetuity formula is used to calculate the present value of a series of periodic payments which increase at a constant rate each period. The formula can be used as the basis for the Gordon growth model when considering how to value shares and stocks.
For a business which is operated through a company or corporation, the equity is referred to as shareholders’ equity and the capital introduced is referred to as capital stock or share capital, and represents ownership in the company or corporation. This ownership also gives the stockholder a right to a share in the retained earnings of the business.