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Question 1

In which of the financial statements can a user find details regarding items that caused retained earnings to increase and decrease during the fiscal year?

Balance sheet

Statement of cash flows

Statement of changes in stockholders’ equity

Income statement

Answer 1

Statement of changes in stockholders’ equity

The details showing the increases and decreases to the Retained Earnings account are reported in the statement of changes in stockholders’ equity. Retained Earnings is also reported in the balance sheet, but the details of the items causing the changes to the beginning balance are only found in the statement of changes in stockholders’ equity.

Question 2

Financial Statements

Answer 2

A financial statement is a structured representation of historical financial information, including related notes, intended to communicate an entity’s economic resources and obligations at a point in time or the changes therein for a period of time in accordance with a financial reporting framework.

Financial statements ordinarily refer to a complete set of financial statements as determined by the requirements of the applicable financial reporting framework.

Question 3

Retained Earnings

Answer 3

Retained earnings are an increase in net assets from results of operations, retained by the corporation for use in the enterprise. They are internally generated financing or the corporation’s undistributed earnings. They are accumulated earnings, less accumulated losses and dividends paid, from inception. Retained earnings are a major source of owners’ equity and can be viewed as additional investments by the owners as foregone dividends.

Negative balance is called a deficit.

Retained earnings may also be decreased by purchase of treasury stock at a price higher than the amount originally received for the stock.

Retained earnings may be appropriated (i.e., restricted as to use) by:

contractual specification (e.g., bond covenants),
legal requirement (e.g., by state law), or
management discretion (e.g., for future expansion).
Retained earnings are increased by net income, prior-period adjustments, and quasi-reorganization. Retained earnings are decreased by net loss, prior-period adjustments, cash, property, scrip, stock dividends, and treasury stock and stock retirement transactions.

Question 4

2114.01

Answer 4

Question 5

2114.02

Answer 5

Tiger Co.’s statement of changes in stockholders’ equity reveals the following:

a. Column headings identify individual stockholders’ equity accounts.
b. Events changing stockholders’ equity accounts are listed chronologically to the left.
c. The body of the statement is presented in terms of the dollar impact of various transactions and events.
d. The impact of the transactions on the number of shares of stock, if any, is presented in the descriptions to the left.
e. The ending balances tie to the items presented in the stockholders’ equity section of the balance sheet on the same dates.