A statement of stockholders’ equity lists balances of:
a. Retained earnings
b. Net income
c. Accrued dividends
d. Cash dividends
e. Earnings per share
f. Common stock shares
The Correct Answer and Explanation is :
The correct answer is a. Retained earnings and f. Common stock shares.
The statement of stockholders’ equity is one of the four primary financial statements used by companies. It reflects the changes in the equity section of the balance sheet over a specific period. Stockholders’ equity represents the owners’ claims on the company after liabilities have been subtracted from assets. The primary components of stockholders’ equity include common stock, preferred stock, additional paid-in capital, treasury stock, and retained earnings.
- Retained Earnings: This is a crucial part of the statement of stockholders’ equity. It represents the cumulative amount of net income that a company has retained over time after paying out dividends to shareholders. Retained earnings are often reinvested into the business to support operations, expansion, or debt repayment. The change in retained earnings from period to period is a key factor in understanding a company’s financial health.
- Common Stock Shares: Common stock is another significant element of stockholders’ equity. It represents the ownership interest of shareholders in the company. The statement of stockholders’ equity will list any changes in common stock, such as additional shares issued, shares repurchased (treasury stock), or any stock splits. This information provides insight into how a company is managing its capital structure and shareholder base.
Other options like net income, accrued dividends, cash dividends, and earnings per share may influence the changes in stockholders’ equity, but they are not directly listed on the statement itself. Net income is incorporated into retained earnings, and dividends reduce retained earnings, but they are not stand-alone components on the statement of stockholders’ equity. Earnings per share is a metric that reflects the profitability of a company but does not appear in the equity statement itself.