Wize University Introduction to Financial Accounting Textbook > Financial Statements
Statement of Changes in Equity
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The Purpose of the Statement of Changes in Equity
A statement of changes in shareholders equity is a financial statement that presents a summary of the changes in shareholders’ equity accounts over the reporting period. It reconciles the opening balances of equity accounts with their closing balances.
What Appears on the Statement?
- Changes to Retained Earnings
- Net Income
- Dividends
- Corrections from prior periods
- If prior period's net income was overstated the correction will reduce retained earnings
- If prior period's net income was understated the correction will increase retained earnings
- Other changes in to Retained Earnings
- Changes to Contributed Capital
- Issuance of Shares
- Repurchase of Shares
- Other changes to Contributed Capital
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Example: Statement of Changes in Equity
Karlawn Inc. reported the following on its statement of financial position at the beginning of 2020:
Additional information from 2020:
- Net income: $200,000
- Dividends declared and paid: $40,000
- The company issued 30,000 new common shares for $35 per share
- An analysis of the 2018 financial statements found the net income in that year had been overstated by $10,000
Prepare the statement of changes in equity for December 31, 2020
Practice: Statement of Changes in Equity
At the end of last year (2019), ABC Inc. reported a balance of $650,000 in retained earnings and it had 400,000 outstanding common shares at an average issue price of $10 per share. In 2020, the following financial information was made available by the company's new CFO in hopes that you can make sense of it:
- Total revenues: $350,000
- Total expenses: $198,000
- 100,000 new common shares issues at $20 per share
- $125,000 of dividends declared and paid
- Net income from 2019 financial statement was understated by $12,500 due to a clerical error
The CFO has asked you to help her prepare the company's statement of changes in equity
What is the amount of retained earnings at the end of 2020?