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    The Stockholders' Equity Section and Its Components

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    As part of a Careers in Accounting program sponsored by accounting organizations and supported by your company, you will be taking a group of high-school students through the accounting department in your company. You will also provide them with various materials to explain the work of an accountant. One of the materials you will provide is the Stockholders' Equity section of a recent balance sheet.
    Required: Prepare a short response explaining each major section: Common Stock, Additional Paid-in Capital, and Retained Earnings. You should try to be brief but clear. Remember to include a description of treasury stock as well

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    Solution Preview

    Common Stock: Common stock represents ownership interests in the corporation. For state tax purposes, the stock is assigned a par value. This value is not related to the stock's market value and is used solely for assessment purposes. This account represents the par value of all common stock issued since the company starting issuing such stock. (Note that a corporation's board of directors may authorize it to issue millions of shares, but the corporation may actually issue (i.e., sell) only a small portion of its authorized shares.) For example, if 1,000 shares of common stock with a par value of $1.00 per share are sold for $10.00 ...

    Solution Summary

    This solution explains, in some detail, each component of the stockholders' equity section of a balance sheet.