Why does the preferred stockholders’ equity section of the balance she

Why does the preferred stockholders’ equity section of the balance sheet change only when new shares are sold or repurchased,

whereas the common stockholders’ equity section changes from year to year regardless of whether new shares are bought or sold?

ANSWER

Preferred stock is a fixed perpetuity. Common equity consists of the paid in capital plus changes in retained earnings. The portion of net income not paid as dividends to common stock holders becomes additions to retained earnings for the firm. Because this money belongs to the shareholders but is being retained by the firm and reinvested, it is considered an addition to the equity provided by common shareholders.