Question

Briefly state and explain each major items in Stockholders' Equity section of a Balance Sheet, i.e. Paid-in capital, such as Common Stock, Additional Paid-in Capital, Retained Earnings, Treasury Stocks, and so on.

Answer 1

Major items in Stockholders' Equity section of balance sheet is:

Paid in capital(only par value) which consists of preferred stock and common stock and it represents the funds that the raised by the company through selling it's equity without undergoing any operations. Here, preferred stock represents funds raised through sale of the preference shares which have preference over equity shares at time of payment of dividends and these have fixed rate of dividend where such dividend get cumulated at the time when there are no profits if such preference shares are cumulative preference shares and the funds raised through sale of common stock will be shown under common stock head.

Then the additional paid in capital consists of the excess that the shareholders paid over the par value for aquiring preferred or common stock and shown under the head contributed surplus or pai in eexcess.

Treasury stock refers to the stock that is repurchased by the company and shown in balance sheet which may be resold or retired at the will of the company and these are shown under the head paid in capital and later deducted to get the absolute value of shareholders equity.These are not included at the time of delivery calculation.

Retained earnings refers to the undistributed earnings after the payment of dividends which are in general used to reinvestment or repayment of debt.

Accumulated other comprehensive income refers to unrealized income which cannot be shown in income statement.