Which of the following best describes the information reported in the statement of stockholders' equity?

• A. It presents the company's assets, liabilities, and stockholders' equity at a specific point in time.
• B. It reports the company's revenues and expenses to calculate net income for the period.
• C. It summarizes the cash inflows and outflows from operating, investing, and financing activities during the period.
• D. It shows the changes in each component of stockholders' equity, such as common stock, retained earnings, and dividends, over a specific period.

Answer: (D)

Verified step by step guidance

1. Understand the purpose of the statement of stockholders' equity: It is a financial statement that provides details about changes in the components of stockholders' equity over a specific period.
2. Identify the key components of stockholders' equity: These typically include common stock, retained earnings, additional paid-in capital, treasury stock, and dividends.
3. Recognize the types of changes reported: The statement shows increases or decreases in stockholders' equity components due to transactions such as issuing stock, earning net income, or paying dividends.
4. Compare the statement of stockholders' equity to other financial statements: Unlike the balance sheet, which shows assets, liabilities, and equity at a specific point in time, or the income statement, which reports revenues and expenses, this statement focuses solely on equity changes.
5. Conclude that the correct description is: 'It shows the changes in each component of stockholders' equity, such as common stock, retained earnings, and dividends, over a specific period.'