LESSON 15-3

1. LESSON 15-3 Preparing a Statement of Stockholder’s Equity

2. STOCKHOLDERS’ EQUITY ACCOUNTS USED BY A CORPORATION • A corporation’s ownership is divided into units • Each unit of ownership in a corporation is known as a share of stock • Each stockholder is an owner of a corporation • Owners’ Equity accounts for a corporation normally are listed under a major chart of accounts division titled Stockholders’ Equity LESSON 15-3

3. STOCKHOLDERS’ EQUITY ACCOUNTS USED 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 LESSON 15-3

4. SECTIONS OF THE STATEMENT OF STOCKHOLDERS’ 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 sections • Capital stock • Retained earnings LESSON 15-3

5. CAPITAL STOCK SECTION OF THE STATEMENT 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 LESSON 15-3

6. CAPITAL STOCK SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 461 1 2 3 4 5 1. Heading 2. Capital Stock and Par Value 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 5. Total stock issued at the end of the year LESSON 15-3

7. RETAINED EARNINGS SECTION OF THE STATEMENT 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 LESSON 15-3

8. 5 6 7 RETAINED EARNINGS SECTION OF THE STATEMENT OF STOCKHOLDERS’ EQUITY page 462 1 3 2 4 1. Retained Earnings 4. Dividends declared 2. Beginning balance 5. Increase in retained earnings 3. Net income after federal income tax 6. Ending balance 7. Total stockholders’ equity LESSON 15-3

9. TERMS REVIEW page 463 • statement of stockholders’ equity • par value LESSON 15-3