Chapter 1, Problem 1.2DIR

To determine

Stockholders’ Equity

Stockholders’ equity refers to the claim of the owners or the stockholders of a company, on its assets. It consists of the contributed capital from the stockholders along with accumulated retained earnings over the years. It is also known as the ‘net worth’ of the company, as it is derived by subtracting the total liabilities from the total assets.

It usually consists of common stock and retained earnings. Common stock is the total amount paid in by stockholders for the shares they purchase. Retained earnings is a financial statement that shows the amount of net income retained by a company at a particular point of time for reinvestment and used to pay its debts and obligations. The retained earnings section of the balance sheet is determined by revenues, expenses, and dividends.

To classify: The given items as issuance of stock (I), dividends (D), revenues (R), or expenses (E) and show their effects on the stockholders’ equity.