Which of the following accounts appears on the statement of stockholders' equity?

• A. Retained Earnings
• B. Cost of Goods Sold
• C. Inventory
• D. Accounts Payable

Answer: (A)

Verified step by step guidance

1. Understand the purpose of the statement of stockholders' equity: It is a financial statement that shows changes in the equity section of the balance sheet over a specific period. It includes accounts related to stockholders' ownership, such as retained earnings, common stock, and additional paid-in capital.
2. Identify the nature of each account listed in the problem: Retained Earnings is part of stockholders' equity, while Cost of Goods Sold, Inventory, and Accounts Payable are not equity accounts. Cost of Goods Sold is an expense account, Inventory is an asset account, and Accounts Payable is a liability account.
3. Recognize that Retained Earnings is a key component of the statement of stockholders' equity. It represents the cumulative net income retained by the company after paying dividends to shareholders.
4. Exclude accounts that do not belong to stockholders' equity: Cost of Goods Sold, Inventory, and Accounts Payable are reported on other financial statements (income statement and balance sheet) but not on the statement of stockholders' equity.
5. Conclude that Retained Earnings is the correct account that appears on the statement of stockholders' equity, as it directly impacts the equity section by reflecting changes in net income and dividends.