Accounting: The Language of Business - Vol. 2 (Intermediate: Part 60)

I talked to one accountant, a very nice fellow who I would have been glad to have his family marry into mine. He said, "What these other accounting firms have done is very unethical. The [tax avoidance scheme] works best if it's not found out [by the IRS], so we only give it to our best clients, not the rest, so it's unlikely to be discovered. So my firm is better than the others." [Laughter] I'm not kidding. And he was a perfectly nice man. People just follow the crowd...Their mind just drifts off in a ghastly way.

Charlie Munger

Statements of Net Income and Comprehensive Income (Part O)

by

Charles Lamson

EXAMPLE 5.4 Computation of Stockholders' Equity

PROBLEM: Starling Corporation started the year on January 1 with the following balances in the stockholders' equity on its balance sheet.

It reported the following items and transactions with owners during the current year:

What is the amount of Starling's retained earnings, contributed capital, and accumulated other comprehensive income at the end of the year?

Use the following template to prepare a Statement of Stockholders' Equity and answer the questions.

SOLUTION: We first identify the components of stockholders' equity associated with each line item and transactions with owners.

Next, we place the beginning balances in the template and add the income items and transactions with owners in the appropriate columns. We compute other comprehensive income as follows:

 

Finally, we compute the totals across rows and down columns.

At the end of the year, retained earnings is $842,000, contributed capital is $842,000 ($122,000 +  $722,000), and accumulated other comprehensive income is $39,000.

Exhibit 5.19 presents Kimberly-Clark's 2016 Statement of Stockholders Equity. The first column reports the number of issued shares of common stock. The second column reports the dollar amount of common stock issued and the third the amount of additional paid-in-capital. The number of shares and dollar amount in treasury stock, which reduces equity, is in the next two columns, Retained earnings is in the sixth column, which increases with net income and decreases with dividends. The second to last column presents accumulated other comprehensive income. The last column represents the non-controlling interest.

EXHIBIT 5.19 Statement of Stockholders' Equity, Kimberly-Clark Corporation, Financial Statements, December 31, 2016

(https://www.kimberly-clark.com/-/media/kimberly/pdf/annual-report/kmb-2016-

10k_umbracofile.pdf)

Stockholders Equity Requirements: IFRS. Unlike U.S. GAAP, IFRS requires a statement of stockholders' equity.

*GORDON, RAEDY, SANNELLA, 2019, INTERMEDIATE ACCOUNTING, 2ND ED., PP. 200-201*

end