Question

Distinguish between common and preferred stock. What is paid in capital? What retained earnings? How are they reported in the financial statements?

Answer 1

Common Stock are the stocks, those give shareholders the right to vote in the meeting of the shareholders. They are also know as owner's of the company. The common stocks holders may get dividend only after payment of dividend to preferred stock holders. The holder of these stocks usally terms as Equity Stock Holders.

Preferred Stock are the stocks those carry a preferential right over the common stock holder in the matter of dividend. They do not carry the voting rights as the common stock holders do.

Paid in capital is the amount of issued capital & in respect of the same the amount has been fully received from the stock holders. They are called as paid up stock capital.

Retained earnings represent the company earnings ( Previous year as well as current year) left over after payment of taxes & preferred stock if any, that is availbale for distribution to common stock holders as dividend.

Reporting in Financial Statements:-

They are being reported on Equities & Liabilities side of Balance Sheet under the head Stockholder's Equities.

Paid in Capital- Common Stock XXXXX

Paid in Capital- Preferred Stock XXXXX

Retained Earning XXXXX

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STOCK HOLDER'S EQUITY XXXXX

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