Page 531 - Accounting Principles (A Business Perspective)

13. Corporations: Paid-in capital, retained earnings, dividends, and treasury stock

Statement of retained earnings

A statement of retained earnings is a formal statement showing the items causing changes in
unappropriated and appropriated retained earnings during a stated period of time. Changes in unappropriated
retained earnings usually consist of the addition of net income (or deduction of net loss) and the deduction of
dividends and appropriations. Changes in appropriated retained earnings consist of increases or decreases in
appropriations.
Note Ward Corporation's statement of retained earnings in Exhibit 101. The only new appropriation during 2010

was an additional USD 35,000 for plant expansion. Ward added this new USD 35,000 to the USD 25,000
beginning balance in that account and subtracted that amount from unappropriated retained earnings. An
alternative to the statement of retained earnings is the statement of stockholders' equity.
Ward Corporation
Statement of Retained Earnings
For Year Ended 2010 December 31
Unappropriated retained earnings:
2010 January 1, balance $180,000
Add: Net income 80,000
$260,000
Less: Dividends $15,000
Appropriation for plant expansion 35,000 50,000
Unappropriated retained earnings, 2010
December 31 $210,000
Appropriated retained earnings:
Appropriation for plant expansion, 2010
January 1, balance $25,000
Add: Increase in 2010 35,000 $ 60,000
Appropriation for contract obligation, 2010 20,000
January 1, balance
Appropriated retained earnings, 2010 $80,000
December 31
Total retained earnings, 2010 December 31 $290,000
Exhibit 101: Statement of retained earnings
Statement of stockholders' equity

Most corporations include four financial statements in their annual reports: a balance sheet, an income
statement, a statement of stockholders' equity (in place of a statement of retained earnings), and a statement of
cash flows (discussed in Chapter 16). A statement of stockholders' equity is a summary of the transactions
affecting the accounts in the stockholders' equity section of the balance sheet during a stated period. These
transactions include activities affecting both paid-in capital and retained earnings accounts. Thus, the statement of
stockholders' equity includes the information contained in a statement of retained earnings plus some additional
information. The columns in the statement of stockholders' equity reflect the major account titles within the
stockholders' equity section: the types of stock issued and outstanding, paid-in capital in excess of par (or stated)

value, retained earnings, and treasury stock. Each row indicates the effects of major transactions affecting one or
more stockholders' equity accounts.
Look at Exhibit 102, a statement of stockholders' equity. The first row indicates the beginning balances of each
account in the stockholders' equity section. This summary shows that Larkin Corporation issued 10,000 shares of
common stock, declared a 5 per cent stock dividend on common stock, repurchased 1,200 shares of treasury stock,
earned net income of USD 185,000, and paid cash dividends on both its preferred and common stock. After the
transactions' effects are indicated within each row, Larkin added or subtracted each column's components to

determine the ending balance in each stockholders' equity account.

532