Identifying and Analyzing Financial Statement Effects of Stock Transactions The
ID: 2538127 • 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 $11 cash per share.
Jan. 18 Purchased 4,000 shares of common stock for the treasury at $15 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 $14 cash per share.
Oct. 1 Issued 5,000 shares of 8%, $21 par value preferred stock for $38 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
Noncash
Assets
Contributed
Capital
Earned
Capital
Income Statement
Net
Income
(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.
Common stock, $ 5 par value, 350,000 shares authorized; 180,000 shares issued and outstanding $ 900,000 Paid-in capital in excess of par value 600,000 Retained earnings 346,000Explanation / Answer
Answer
Balance Sheet
Income Statement
Transaction
Cash Asset
+
Noncash
=
Liabilities
+
Contributed
+
Earned
Revenue
-
Expenses
=
Net
Assets
Capital
Capital
Income
Opening balance
1500000
346000
Jan. 5
110000
0
0
110000
0
0
0
0
Jan. 18
-60000
0
0
-60000
0
0
0
0
Mar. 12
17000
0
0
17000
0
0
0
0
July. 17
7000
0
0
7000
0
0
0
0
Oct. 1
190000
0
0
190000
0
0
0
0
Stockholders' Equity
Working
Final Answer
Paid-in capital
Opening
Jan-05
Jan-18
Mar-12
Jul-17
Oct-01
Net Income
8% Preferred stock, $21 par value, 50,000 shares authorized, 5,000 shares issued and outstanding
105000
105000
Common stock, $5 par value, 350,000 shares authorized; 190,000 shares issued
900000
50000
950000
1055000
Additional paid-in capital
Paid-in capital in excess of par value-preferred stock
85000
85000
Paid-in capital in excess of par value-common stock
600000
60000
660000
Paid-in capital from treasury stock
2000
-500
1500
746500
Total paid-in capital
1801500
Retained earnings
346000
72500
418500
2220000
Less: Treasury stock (2,500 shares) at cost (use a negative sign with your answer)
-60000
15000
7500
37500
Total Stockholders' Equity
2182500
Total (working for Requirement 1)
1846000
110000
-60000
17000
7000
190000
72500
Balance Sheet
Income Statement
Transaction
Cash Asset
+
Noncash
=
Liabilities
+
Contributed
+
Earned
Revenue
-
Expenses
=
Net
Assets
Capital
Capital
Income
Opening balance
1500000
346000
Jan. 5
110000
0
0
110000
0
0
0
0
Jan. 18
-60000
0
0
-60000
0
0
0
0
Mar. 12
17000
0
0
17000
0
0
0
0
July. 17
7000
0
0
7000
0
0
0
0
Oct. 1
190000
0
0
190000
0
0
0
0
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