The stockholders’ equity section on the December 31, 2014, balance sheet of Amer

Question

The stockholders’ equity section on the December 31, 2014, balance sheet of American Corporation follows: Stockholders’ Equity Contributed capital Preferred stock (par $26; authorized 15,000 shares, ? issued, of which 900 shares are held as treasury stock) $ 234,000 Common stock (no-par; authorized 22,000 shares, issued and outstanding 9,000 shares) 720,000 Contributed capital (includes $2,100 from treasury stock transactions) 20,100 Retained earnings 39,000 Cost of treasury stock, preferred

1.Calculate the number of shares of preferred stock issued-____

2.Calculate the number of shares of preferred stock outstanding_____

3.Calculate the average sale price of the preferred stock when issued. (Round your answer to 2 decimal places.)_____

4.

Have the treasury stock transactions increased corporate resources or decreased corporate resources? By how much? (Enter the amount as positive value.)

5.By how much the treasury stock transactions increased (decreased) stockholders’ equity? (Enter the amount as positive value.)

6

Have the treasury stock transactions increased corporate resources or decreased corporate resources? By how much? (Enter the amount as positive value.)

Explanation / Answer

Solution.

1)

Calculation of paid up capital of preferred stock

Calculation of issue price of preferred stock:

Calculation of number of preferred stock issued:

2)

Number of shares of preferred stock outstanding = Number of shares of preferred stock issued - Treasury Stock

= 10596 - 900 = 9696 shares

3)

Average sale price of preferred stock share = $45.67 (Calculated in Part 1)

4)

The treasury stock transactions have decreased the corporate resources (cash) by an amount equal to $39000 i.e., the cost of buying this stock.

5) The treasury stock transactions have increased stockholders’ equity by $2100 i.e., gain on such transactions.

6) Treasury Stock cost per share = $39000 / 900 shares = $43.33

7) Calculation of Stock holder's Equity:

Contributed Capital $720000 (-) Treasury stock transactions $2100 (-) Common Stock $234000 Paid up value of preferred stock $483900

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