Identifying and Analyzing Financial Statement Effects of Stock Transactions The
ID: 2536714 • Letter: I
Question
Identifying and Analyzing Financial Statement Effects of Stock Transactions
The stockholders' equity of Verrecchia Company at December 31, 2011, follows:
During 2012, the following transactions occurred:
Jan. 5 Issued 10,000 shares of common stock for $12 cash per share.
Jan. 18 Purchased 4,000 shares of common stock for the treasury at $14 cash per share.
Mar. 12 Sold one-fourth of the treasury shares acquired January 18 for $17 cash per share.
July 17 Sold 500 shares of the remaining treasury stock for $13 cash per share.
Oct. 1 Issued 5,000 shares of 8%, $25 par value preferred stock for $35 cash per share. This is the first issuance of preferred shares from the 50,000 authorized shares.
(a) Use the financial statement effects template to indicate the effects of each transaction.
Use negative signs with answers, when appropriate.
Balance Sheet
Contributed
Capital
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Capital
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Income Statement
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(b) Prepare the December 31, 2012, stockholders' equity section of the balance sheet assuming that the company reports net income of $72,500 for the year.
Use a negative sign with your answer for treasury stock.
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Partially correct
Common stock, $ 5 par value, 350,000 shares authorized; 150,000 shares issued and outstanding $ 750,000 Paid-in capital in excess of par value 600,000 Retained earnings 346,000Explanation / Answer
Balance Sheet Income Statement Transaction Cash Asset + Non-cash Assets = Liabilities + Contributed + Earned Revenue - Expenses = Net Capital Capital Income Jan. 5 50000 (Common Stock) 120000 70000 (Addl: Paid in capital-Comon stock) Jan. 18 -56000 -56000 (Treasury Stock) Mar. 12 17000 14000 (Treasury stock) 3000 (Paid in capital-Treasury stock) July. 17 6500 7000 (Treasury stock) -500 (Paid in capital-Treasury stock) Oct. 1 125000 (Prefered Stock) 175000 50000 (Addl: Paid in capital-Preferred stock) (b) Prepare the December 31, 2012, stockholders' equity section of the balance sheet assuming that the company reports net income of $72,500 for the year. Stockholders' Equity Paid-in capital 8% Preferred stock, $25 par value, 50,000 shares authorized, 5,000 shares issued and outstanding 125000 Common stock, $5 par value, 350,000 shares authorized; 160,000 shares issued 800000 925000 Additional paid-in capital Paid-in capital in excess of par value-preferred stock 50000 Paid-in capital in excess of par value-common stock 670000 Paid-in capital from treasury stock 2500 722500 Total paid-in capital 1647500 Retained earnings 418500 Total 2066000 Less: Treasury stock (2,500 shares) at cost (use a negative sign with your answer) -35000 Total Stockholders' Equity 2031000
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