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Chapter 13: Q22RQ (page 707)

What does the statement of stockholders鈥� equity report? How does the statement of stockholders鈥� equity differ from the statement of retained earnings?

Short Answer

Expert verified

The statement of stockholders' equity is another choice for accounting the changes in stockholders' equity of a corporation. This statement of stockholders possesses more information in comparison to the statement of retained earnings in statement of stockholders it reports the changes in all stockholders' equity accounts, not just retained earnings.

Step by step solution

01

Introduction to Statement of stockholders

A statement of shareholders' equity represents the changes within the equity section of the balance sheet throughout an assigned time frame.

02

The statement of stockholders’ equity differs from the statement of retained earnings

The retained earnings statement represents the changes between the starting and ending balances of the retained earnings account during the period, the statement of stockholders' equity represents the changes between the starting and ending amount of each of the stockholders' equity accounts, including retained earnings.

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Most popular questions from this chapter

Lena Kay and Kathy Lauder have a patent on a new line of cosmetics. They need additional capital to market the products, and they plan to incorporate the business. They are considering the capital structure for the corporation. Their primary goal is to raise as much capital as possible without giving up control of the business. Kay and Lauder plan to invest the patent (an intangible asset, which will be transferred to the company鈥檚 ownership in lieu of cash) in the company and receive 100,000 shares of the corporation鈥檚 common stock. They have been offered \(100,000 for the patent, which provides an indication of the fair market value of the patent. The corporation鈥檚 plans for a charter include an authorization to issue 5,000 shares of preferred stock and 500,000 shares of \)1 par common stock. Kay and Lauder are uncertain about the most desirable features for the preferred stock. Prior to incorporating, they are discussing their plans with two investment groups. The corporation can obtain capital from outside investors under either of the following plans:

鈥� Plan 1. Group 1 will invest \(150,000 to acquire 1,500 shares of 6%, \)100 par nonvoting, noncumulative preferred stock.

鈥� Plan 2. Group 2 will invest \(100,000 to acquire 1,000 shares of \)5, no-par preferred stock and \(70,000 to acquire 70,000 shares of common stock. Each preferred share receives 50 votes on matters that come before the common stockholders.

Requirements Assume that the corporation has been chartered (approved) by the state.

1. Journalize the issuance of common stock to Kay and Lauder. Explanations are not required.

2. Journalize the issuance of stock to the outsiders under both plans. Explanations are not required.

3. Net income for the first year is \)180,000, and total dividends are $30,000. Prepare the stockholders鈥� equity section of the corporation鈥檚 balance sheet under both plans at the end of the first year.

4. Recommend one of the plans to Kay and Lauder. Give your reasons

How does preferred stock differ from common stock?

What are the three relevant dates involving cash dividends? Describe each.

Journalizing treasury stock transactions and reporting stockholders鈥� equity

Southern Amusements Corporation had the following stockholders鈥� equity on

November 30:

Paid-In Capital:

Common Stock鈥擻(5 Par Value; 1,300 sharesauthorized, 250 shares issued and outstanding1,250

Retained Earnings50,000

Total Stockholders鈥� Equity \) 55,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 3,750

Total Paid-In Capital

\(5,000

On December 30, Southern purchased 200 shares of treasury stock at \)15 per share.

Requirements

1. Journalize the purchase of the treasury stock.

Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders鈥� equity

The balance sheet of Goldstein Management Consulting, Inc. at December 31, 2017, reported the following stockholders鈥� equity:

Common Stock鈥擻(10 Par Value; 350,000 shares

authorized, 32,000 shares issued and outstanding

Paid-In Capital:

160,000

\) 320,000

650,000

Retained Earnings

Total Stockholders鈥� Equity \( 810,000

Stockholders鈥� Equity

Paid-In Capital in Excess of Par鈥擟ommon 330,000

Total Paid-In Capital

During 2018, Goldstein completed the following selected transactions:

Feb. 6 Declared a 15% stock dividend on common stock. The market value of

Goldstein鈥檚 stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,300 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.10 per share cash dividend on the common stock outstanding.

Requirements

2. Prepare a retained earnings statement for the year ended December 31, 2018. Assume Goldstein鈥檚 net income for the year was $90,000.
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