On January 10, the number of shares outstanding is increased by 100,000 by the
following entry to record the issue of the stock:A stock dividend does not change the assets, liabilities, or total stockholders’
equity of the corporation. Likewise, it does not change a stockholder’s proportionate
interest (equity) in the corporation. For example, if a stockholder owned 1,000 of a cor-
poration’s 10,000 shares outstanding, the stockholder owns 10% (1,000/10,000) of the
corporation. After declaring a 6% stock dividend, the corporation will issue 600 addi-
tional shares (10,000 shares 6%), and the total shares outstanding will be 10,600. The
stockholder of 1,000 shares will receive 60 additional shares and will now own 1,060
shares, which is still a 10% equity interest.REPORTING STOCKHOLDERS’ EQUITY
Significant changes in stockholders’ equity are reported for the period in which they
occur. These changes are reported in a statement of stockholders’ equity. This state-
ment is often prepared in a columnar format, where each column represents a major
stockholders’ equity classification. Changes in each classification are then described in
the left-hand column, starting with the beginning balance in the first row and ending
with the ending balance in the last row. Exhibit 6 illustrates the statement of stock-
holders’ equity for Mattel, Inc.Most corporations report changes in retained earnings
by preparing a separate Retained Earnings column in the statement of stockholders’
equity, as shown for Mattel in Exhibit 6. The beginning balance of the retained earn-
ings is adjusted for net income (add) or loss (deduct) and dividends (deduct). Mattel,
Inc., earned $573 million and paid dividends of $187 million during 2004, which caused
Retained Earnings to increase by $386 million ($573$187).Accumulated Other Comprehensive Income (Loss)
Note that one of the columns in Exhibit 6 is Accumulated Other Comprehensive Income
(Loss). This column includes an addition for other comprehensive income of $17 mil-
lion.Other comprehensive income (loss)items include foreign currency items, pen-
sion liability adjustments, and unrealized gains and losses on investments.^11 GAAP
requires these items to be separately disclosed from earnings. The cumulative effects
of other comprehensive income items must be reported separately from retained earn-
ings and paid-in capital on the balance sheet as accumulated other comprehensive
income (loss). In addition, companies must report comprehensive income (loss)for
the period, which is the sum of traditional net income plus other comprehensive in-
come. Comprehensive income for Mattel, Inc., was $590 million ($573 million $17
million). When other comprehensive income items are not present, the income state-508 Chapter 11 Stockholders’ Equity: Capital Stock and Dividends
Describe financial state-
ment presentations of
stockholders’ equity.8
11 We will illustrate the accounting for other comprehensive income for unrealized gains and losses on in-
vestments in the next chapter.Jan. 10 Stock Dividends Distributable 2,000,000
Common Stock 2,000,000SCF BS IS
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