Corporations: Paid-in Capital, Retained Earnings, Dividends, and Treasury Stock

Read this chapter, which outlines the different sources of paid-in capital and how they are presented on the balance sheet. This chapter also covers treasury stock, dividends, stock splits, and price-per-share and price-per-earnings ratios.

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 25. 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: $180,000
2010 January 1, balance 80,000
Add: Net income $260,000
Less: Dividends $15,000
Appropriation for plant expansion 35,000 50,000
Unappropriated retained earnings, 2010 December 31 $210,000.00
Appropriated retained earnings:
Appropriation for plant expansion, 2010 January 1, balance $25,000.00
Add: Increase in 2010 35,000 $ 60,000
Appropriation for contract obligation, 2010 January 1, balance 20,000
Appropriated retained earnings, 2010 December 31 $80,000
Total retained earnings, 2010 December 31 $290,000

Exhibit 25: Statement of retained earnings