Equity XACC/291 Week 5 Beverly Clarkson December 7, 2014 Daniel Carraher
RUNNING HEAD: EQUITY
Equity
There are two forms of equity which is common stock and preferred stock. They are both in interest of ownership in a corporation. A company would prefer to invest in equity (stock) instead of bonds. Preferred stock has a rate that is fixed and can also act like a bond. Preferred stock under certain circumstances may receive greater income and claim greater to a company assets. This works for companies when there is excess cash and can distribute money (dividends) to their investors. When this happens preferred stockholders will be paid before common stockholders. There is also a difference in dividends which are generally greater than common stock. Because preferred stock is paid at regular intervals, you have an idea of when to expect dividends. Preferred stocks do not fluctuate as often as common stock and this is why they are classified as fixed-income security. “Adding to this fixed-income personality is the fact that the dividends are typically guaranteed, meaning that if the company does miss one, it will be required to pay it before any future dividends are paid on either stock.” www.investopedia.com Common stock is considered the bottom of the priority ladder. When it comes to company’s assets common shareholders only receive distribution when everyone from bondholders, preferred shareholders and other debt holders have been paid in full. One of the advantages common stock has is that overall they usually outperform bonds and preferred shares. Common stock also has voting rights and can be exercised in corporate decision. The holders elect board of directors that vote on corporate policies. Common stock holders keep their same percentage when new shares are issued. They also share corporate earnings through receipt of dividends. On a balance sheet, common stock is recorded as a credit and debit cash under paid-in capital stockholders’ equity. It will then be recorded in paid in capital account when the portion of the proceed is above or below face
