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What is a Statement of Shareholders’ Equity?

Statement of Shareholders’ Equity

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Statement of Shareholders’ Equity

The Statement of Shareholders’ Equity, sometimes called the Statement of Changes in Shareholders’ Equity or simply the Equity Statement, is one of the main financial statements of a corporation. It provides a comprehensive overview of the changes in a company’s equity over a specific period of time. This statement is especially important for corporations because they can have various equity components due to the issuance of different classes of shares and other equity-related instruments.

In essence, the Statement of Shareholders’ Equity chronicles the activity in each major equity account for a specified period. Typical equity accounts include:

  • Common Stock: Represents the total par or stated value of the issued and outstanding common shares.
  • Preferred Stock: Represents the total par or stated value of the issued and outstanding preferred shares, if any.
  • Additional Paid-in Capital (APIC): The excess amount over the par or stated value that shareholders paid when they bought shares directly from the company.
  • Retained Earnings: Accumulated net income over the life of the company minus accumulated dividends.
  • Treasury Stock: Represents the cost of shares repurchased by the company. It’s a contra-equity account.
  • Accumulated Other Comprehensive Income (AOCI): Includes unrealized gains and losses on certain items, such as investments, hedges, foreign currency translation adjustments, and pension liability adjustments, that have yet to be realized.

Here’s a basic layout of a Statement of Shareholders’ Equity:

  • Beginning balance of each component of equity
  • Additions or reductions due to:
    • Net income or loss
    • Issuance of shares
    • Repurchase of shares (treasury stock transactions)
    • Dividends declared (often reducing retained earnings)
    • Other comprehensive income or loss
  • Ending balance of each component of equity

Example of a Statement of Shareholders’ Equity

Let’s delve into a fictional scenario for a corporation named “TechNova Corp.” This company has Common Stock, Preferred Stock, Additional Paid-in Capital, Retained Earnings, and Accumulated Other Comprehensive Income. For the sake of this example, let’s assume that during the year:

  • TechNova Corp issued additional common stock.
  • The company declared and paid dividends on both common and preferred stock.
  • The company had a net income for the year.
  • Some financial market investments caused a change in Accumulated Other Comprehensive Income.

Here is the Statement of Shareholders’ Equity for TechNova Corp for the Year Ended December 31, 2023:

TechNova Corp: Statement of Shareholders’ Equity For the Year Ended December 31, 2023

Common StockPreferred StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive IncomeTotal Equity
Balance, January 1, 2023$100,000$50,000$150,000$200,000$5,000$505,000
Issuance of common stock$20,000$80,000$100,000
Net Income$60,000$60,000
Common Dividends declared($15,000)($15,000)
Preferred Dividends declared($5,000)($5,000)
Other Comprehensive Income$10,000$10,000
Balance, December 31, 2023$120,000$50,000$230,000$240,000$15,000$655,000

In this example:

  • Common Stock: Began at $100,000 and increased by $20,000 due to the issuance of new stock, ending at $120,000.
  • Preferred Stock: Remained unchanged at $50,000 since no new preferred shares were issued or repurchased.
  • Additional Paid-in Capital (APIC): Started at $150,000 and increased by $80,000 with the new common stock issuance, reaching $230,000 by year-end.
  • Retained Earnings: Started at $200,000, increased by net income of $60,000, but decreased by total dividends of $20,000 ($15,000 for common and $5,000 for preferred), ending at $240,000.
  • Accumulated Other Comprehensive Income: Began at $5,000 and increased by $10,000 due to changes in the value of financial market investments, closing the year at $15,000.

Adding up all the components, the total shareholders’ equity at the beginning of the year was $505,000 and increased to $655,000 by the end of the year.

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