LESSON 15-3
Preparing a Statement of
Stockholder’s Equity
CENTURY 21 ACCOUNTING © Thomson/South-Western
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
CENTURY 21 ACCOUNTING © Thomson/South-Western
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
CENTURY 21 ACCOUNTING © Thomson/South-Western
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
CENTURY 21 ACCOUNTING © Thomson/South-Western
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
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 15-3
6
CAPITAL STOCK SECTION OF THE STATEMENT
page 461
OF STOCKHOLDERS’ EQUITY
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
CENTURY 21 ACCOUNTING © Thomson/South-Western
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
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 15-3
8
RETAINED EARNINGS SECTION OF THE
STATEMENT OF STOCKHOLDERS’ EQUITY
1
3
2
page 462
5
4
6
1. Retained Earnings
2. Beginning balance
3. Net income after federal
income tax
CENTURY 21 ACCOUNTING © Thomson/South-Western
4.
5.
6.
7.
7
Dividends declared
Increase in retained earnings
Ending balance
Total stockholders’ equity
LESSON 15-3
9
TERMS REVIEW
page 463
 statement of stockholders’ equity
 par value
CENTURY 21 ACCOUNTING © Thomson/South-Western
LESSON 15-3