The stockholders\' equity section of Ben Co.\'s December 31, 20X5 balance sheet
ID: 2402277 • Letter: T
Question
The stockholders' equity section of Ben Co.'s December 31, 20X5 balance sheet consisted of the following: Common stock, $20 par, 40,000 shares authorized and outstanding $800,000 Additional paid-in capital 360,000 Retained earnings (deficit) (320,000) On January 2, 20X6, Ben put into effect a stockholder-approved quasi-reorganization by reducing the par value of the stock to $10 and eliminating the deficit against additional paid-in capital. Immediately after the quasi-reorganization, what amount should Ben report as additional paid-in capital? A. $80,000 B. $360,000 C. $320,000 D. $440,000 7 Installment sales $1,500,000 Regular sales 700,000 Cost of installment sales 900,000 Cost of regular sales 300,000 General and administrative expenses 100,000 Collections on installment sales 400,000 The deferred gross profit account in Lane's December 31, 20X5 balance sheet should be A. $440,000 B. $1,100,000 C. $550,000 D. $400,000 The stockholders' equity section of Ben Co.'s December 31, 20X5 balance sheet consisted of the following: Common stock, $20 par, 40,000 shares authorized and outstanding $800,000 Additional paid-in capital 360,000 Retained earnings (deficit) (320,000) On January 2, 20X6, Ben put into effect a stockholder-approved quasi-reorganization by reducing the par value of the stock to $10 and eliminating the deficit against additional paid-in capital. Immediately after the quasi-reorganization, what amount should Ben report as additional paid-in capital? A. $80,000 B. $360,000 C. $320,000 D. $440,000 7 Installment sales $1,500,000 Regular sales 700,000 Cost of installment sales 900,000 Cost of regular sales 300,000 General and administrative expenses 100,000 Collections on installment sales 400,000 The deferred gross profit account in Lane's December 31, 20X5 balance sheet should be A. $440,000 B. $1,100,000 C. $550,000 D. $400,000Explanation / Answer
For the problem one correct answer would be
c. $320,000
explained as
The common stock which are to be converted in to additional paid-in capital is
(common stock per value - par value of stock reduced) * no of shares outstanding
= ($ 20 - $10) * 40000 shares
= $10 * 40000 shares
= $400,000
The additional paidin capital was increased by $80,000 ($400,000- $320,000) as a result of reorganisation
Therefore in net effect $320,000 ($400,000-$80,000)
2. correct answer would be
A. $440,000
Sales $1,500,000
cost of goods sold $400,000
DGP ($1,500,000-$400,000) = $1,100,000
DGP % = ($1,500,000 - $ 900,000)/$1,500,000
= 40%
DGP (40% * $1,100,000)
= $440,000
DGP means Deferred gross profit
Deferred gross profit remaining on uncollected sales accounted for under the instalment method
The GP % on sales collection only is 40%
the uncollected istalment sales amount = $1,100,000
DGP = 40%of $1,100,000
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