What you will learn to do: illustrate financial statement presentation of stockholder’s equity
The stockholders’ equity section of the balance sheet reports the worth of the stockholders. It has two subsections:
- Paid-in capital (from stockholder investments)
- Retained earnings (profits generated by the corporation)
Total paid-in capital is the sum of:
- Preferred Stock plus Paid-in Capital in Excess of Par – Preferred plus
- Common Stock plus Paid-in Capital in Excess of Par – Common plus
- Paid-in Capital from Sale of Treasury Stock.
Since treasury stock is not currently owned by stockholders, it should not be included as part of their worth. Therefore, the value of treasury stock shares is subtracted out to arrive at total stockholders’ equity.
In summary, total stockholders’ equity equals total paid-in capital plus retained earnings minus treasury stock.