6.8: Stockholders’ Equity Section of the Balance Sheet
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The equation for the balance sheet is Assets = Liabilities + Stockholders’ Equity.
The stockholders’ equity section of the balance sheet reports the worth of the stockholders. It has two subsections: Paid-in capital (from stockholder investments) and Retained earnings (profits generated by the corporation.)
Paid in Capital | |
Preferred Stock, $100, $100 par (80,000 shares authorized, 10,000 shares issued) | $1,000,000 |
Excess of issue price over par - preferred | 10,000 |
Common stock, $25 par (50,000 shares authorized, 20,000 shares issued) | 500,000 |
Excess of issue price over par - common | 150,000 |
From sale of treasury stock | 2,000 |
Total paid in capital | $1,662,000 |
Retained Earnings | \(\ \underline{130,000}\) |
Total | 1,792,000 |
Deduct treasury stock | \(\ \underline{27,000}\) |
Total stockholders’ equity | 1,765,000 |
Total paid-in capital is the sum of the first five accounts above and equals Preferred Stock plus Paid-in Capital in Excess of Par - Preferred plus Common Stock plus Paid-in Capital in Excess of Par - Common plus Paid-in Capital from Sale of Treasury Stock.
Common stock includes all shares issued, including those reacquired as treasury stock. Since treasury stock is not currently owned by stockholders, it should not be included as part of their worth. Therefore, the value of treasury stock shares is subtracted out to arrive at total stockholders’ equity.
In summary, total stockholders’ equity equals total paid-in capital plus retained earnings minus treasury stock.
Cash Dividends and Stock Dividends are not reported on the balance sheet.