Final answer:
A reported net loss of $20,000 would lead to a decrease in retained earnings. It reflects a reduction in a company's profits that are kept to reinvest or pay off debt. The common stock is unaffected by the net loss as it represents shareholder equity input during stock issuance.
Step-by-step explanation:
The question pertains to the impact of a reported net loss on a company's financial statements, specifically regarding retained earnings and common stock. If a company reports a net loss of $20,000, this will result in a decrease in its retained earnings.
Retained earnings are the portion of a company's profits that are kept within the company instead of being distributed as dividends to shareholders or used to repurchase shares. These earnings are reinvested into the company or used to pay off debt.
Hence, when a loss occurs, it reduces the retained earnings directly because there are fewer profits to retain.
This transaction does not immediately affect the common stock because common stock represents the equity that has been contributed by the shareholders at the time shares were issued and is not directly impacted by a company's profits or loss in a particular period.