CENTURY 21 ACCOUNTING © Thomson/South-Western

LESSON 15-3LESSON 15-3

Preparing a Statement of Stockholder’s Equity

CENTURY 21 ACCOUNTING © Thomson/South-Western

STOCKHOLDERS’ EQUITY ACCOUNTS STOCKHOLDERS’ EQUITY ACCOUNTS USED BY A CORPORATIONUSED BY A CORPORATION

A corporation’s ownership is divided into unitsEach unit of ownership in a corporation is

known as a share of stockEach stockholder is an owner of a

corporationOwners’ Equity accounts for a corporation

normally are listed under a major chart of accounts division titled Stockholders’ Equity

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LESSON 15-3

CENTURY 21 ACCOUNTING © Thomson/South-Western

STOCKHOLDERS’ EQUITY ACCOUNTS STOCKHOLDERS’ EQUITY ACCOUNTS USED BY A CORPORATIONUSED BY A CORPORATION

The investment of all stockholders is titled Capital Stock This would be equivalent to the Capital account in a merchandising

business (There are a lot of “owners” in a corporation so we put all their ownership in the account Capital Stock)

The amount earned by a corporation (Net Income) that is not distributed to stockholders as dividends is called Retained Earnings Retained earnings is equivalent to the Capital account in a

merchandising business. The corporation’s ownership portion of earnings

Earnings (Net Income) distributed to stockholders are called dividends Dividends is equivalent to the Drawing account in a merchandising

business

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LESSON 15-3

CENTURY 21 ACCOUNTING © Thomson/South-Western

SECTIONS OF THE STATEMENT OF SECTIONS OF THE STATEMENT OF STOCKHOLDERS’ EQUITYSTOCKHOLDERS’ EQUITY

A financial statement that shows changes in a corporation’s ownership for a fiscal period is called a statement of stockholders’ equity

A statement of stockholders’ equity contains two major sectionsCapital stock Retained earnings

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LESSON 15-3

CENTURY 21 ACCOUNTING © Thomson/South-Western

CAPITAL STOCK SECTION OF THE CAPITAL STOCK SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITYSTATEMENT OF STOCKHOLDERS’ EQUITY

The amount of capital stock issued as of the beginning of the year is the beginning balance of the capital stock account.

Additional stock transactions are recorded in the general ledger during the fiscal year

The amounts in the capital stock section of the statement of stockholders’ equity are obtained from the general ledger account, Capital Stock

The monetary value assigned to a share of stock & printed on the stock certificate is called par value

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LESSON 15-3

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 15-3

CAPITAL STOCK SECTION OF THE STATEMENT CAPITAL STOCK SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITYOF STOCKHOLDERS’ EQUITY

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1. Heading

2. Capital Stock and Par Value

5. Total stock issued at the end of the year

3. Stock at the beginning of the year – write the number of shares & the dollar amount

4. Stock issued during the year – write the number of shares & the dollar amount

CENTURY 21 ACCOUNTING © Thomson/South-Western

RETAINED EARNINGS SECTION OF THE RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITYSTATEMENT OF STOCKHOLDERS’ EQUITY

Net income increases a corporation’s total capital. Some may be retained by the corporation for business expansion Some may be distributed as dividends to provide stockholders with a

return on their investments.

Amounts used to prepare the statement of stockholders’ equity are obtained from the income statement & balance sheet columns of the work sheet

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LESSON 15-3

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 15-3

RETAINED EARNINGS SECTION OF THE RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITYSTATEMENT OF STOCKHOLDERS’ EQUITY

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4. Dividends declared

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2. Beginning balance

7. Total stockholders’ equity6. Ending balance3. Net income after federal

income tax

5. Increase in retained earnings1. Retained Earnings

CENTURY 21 ACCOUNTING © Thomson/South-Western

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LESSON 15-3

TERMS REVIEWTERMS REVIEW

statement of stockholders’ equity par value

page 463