• Illustrate the balance sheet presentation of stockholder’s equity

 

Let’s take another look at the most current regulatory reports for The Home Depot, Inc. On page 33 of the 2019 annual report, the company reported the following components of stockholders’ equity:

THE HOME DEPOT INC.
CONSOLIDATED BALANCE SHEET

in millions, except per share data	February 2, 2020	February 3, 2019
Common stock, par value $0.05; authorized 10,000 shares; issued: 1,786 shares at February 2, 2020 and 1,782 shares at February 3, 2019; Outstanding: 1,077 shares at February 2, 2020 and 1,105 shares at February 3, 2019	89	89
Paid-in capital	11,001	10,578
Retained earnings	51,729	46,423
Accumulated other comprehensive loss	(739)	(772)
Treasury stock, at cost, 709 shares at February 2, 2020 and 677 shares at February 3,2019	(65,196)	(58,196)
Total stockholders’ (deficit) equity	Single line (3,116)	Single line (1,878)
Total liabilities and stockholders’ equity	Single line $     51,236 Double line	Single line $     44,003 Double line
Note See accompanying notes to consolidated financial statements

Let’s take a look at a side-by-side comparison of a sole proprietorship’s owner’s equity and that of a corporation:

It’s unlikely a sole proprietorship will be following all aspects of GAAP. It would be unlikely to include Other Comprehensive Gains and Losses unless a bank or other influential stakeholder^[1] required full GAAP compliance. Other comprehensive gains and losses usually arise from changes in market value of short-term investments and adjustments that arise in translating information from subsidiaries that do business in other nations and therefore use other currencies (foreign currency translation).

In short, other than some differences in terminology and technical differences, the basic expanded version of the accounting equation still holds true:

A = L + E, where E = capital contributions − withdrawals + revenue − expenses.

For a corporation, it could be listed as:

Equity = paid-in capital from the sale of stock (par and in excess of par) − dividends and treasury stock + revenues and other comprehensive income − expenses and other comprehensive losses.

One final note: The balance in retained earnings is generally available for dividend declarations. Some companies state this fact. In some circumstances, however, there may be retained earnings restrictions. These make a portion of the balance currently unavailable for dividends. Restrictions result from one or more of these causes: legal, contractual, or voluntary. For instance, a contractual restriction may be the result of loan covenants. A voluntary restriction may be because of a board resolution. A legal restriction may be imposed as part of a lawsuit settlement. Companies generally disclose retained earnings restrictions in the notes to the financial statements.

In the next section, we’ll study the Statement of Changes in Stockholders’ Equity, but first, check your understanding of the balance sheet presentation.

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