Ownership interests in a corporation are reported both in the balance sheet under shareholders’ equity and in the statement of shareholders’ equity.
Required:
a. List the principal transactions and events reducing the amount of retained earnings. (Do not include appropriations of retained earnings.)
b. The shareholders’ equity section of the balance sheet makes a distinction between contributed capital and retained earnings. Discuss why this distinction is important.
c. There is frequently a difference between the purchase price and sale price of treasury stock. Yet, practitioners agree that a corporation’s purchase or sale of its own stock cannot result in a profit or loss to the corporation. Explain why corporations do not recognize the difference between the purchase and sale price of treasury stock as a profit or loss.
