Identifying and Analyzing Financial Statement Effects of Stock Transactions The
ID: 3005253 • Letter: I
Question
Identifying and Analyzing Financial Statement Effects of Stock Transactions The stockholders equity of Verrecchia Company at December 31, 2011, follows: 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 346,000 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. (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, $21 par value, 50,000 shares authorized, 5,000 shares issued and outstanding $Answer 105,000 Correct Common stock, $5 par value, 350,000 shares authorized; 190,000 shares issued Answer 950,000 Correct Additional paid-in capital Paid-in capital in excess of par value-preferred stock Paid-in capital in excess of par value-common stock Paid-in capital from treasury stock Total paid-in capital Retained earnings Less: Treasury stock (2,500 shares) at cost Total Stockholders Equity
Explanation / Answer
The stockholders equity of Verrecchia Company at December 31, 2011, follows
Common stock, $ 5 par value,
shares authorized = 350,000
shares issued = 180,000
outstanding = $ 900,000
Paid-in capital in excess of par value = 600,000
Retained earnings = 346,000
During 2012, the following transactions occurred:
an. 5 Issued 10,000 shares of common stock for $11 cash per share.
Dr Cash= 10000*11 = 110,000
Cr Common Stock = 50,000
Cr Paid-In Capital in Excess of Par Value, Common Stock 60,000
Shares of common stock issued and outstanding = 190,000
Jan. 18
Purchased 4,000 shares of common stock for the treasury at $15 cash per share.
Dr Treasury Stock = 4000*15 = 60,000
Cr Cash 60,000
There are now 190,000 shares issued and 160,000 shares outstanding of common stock.
Mar. 12
Sold one-fourth of the treasury shares acquired January 18 for $17 cash per share.
1,000 x 17 = $17,000 cash received
Dr Cash = 17,000
Cr Common Treasury Stock = 14,000
Cr Paid-In Capital from Sale of Treasury Stock = 3,000
Now there are 190,000 shares issued and 187,000 shares outstanding of common stock.
July 17
Sold 500 shares of the remaining treasury stock for $14 cash per share.
Dr Cash = 14 * 500 = 7,000
Dr Paid In Capital from Sale of Treasury Stock = 500
Cr Common Treasury Stock = 7,000 + 500 = 7,500
now there are 190,000 shares issued and 187,500 shares outstanding of common stock.
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.
Dr Cash 190,000
Cr Preferred Stock 105,000
Cr Paid-In Capital in Excess of Par Value, Preferred Stock 50,000
net income of $72,500 for the year.
Dr Income Summary 72,500
Cr Retained Earnings 72,500
Stockholders' Equity
Paid-in capital $
8% Preferred stock, $21 par value, 50,000 shares authorized,
5,000 shares issued and outstanding = 21 * 5000 = $105,000
Common stock, $5 par value, 350,000 shares authorized
190,000 shares issued, 187,500 outstanding = 190,000*5= 950,000
Additional paid-in capital Paid-in capital in excess of
par value-preferred stock = 50,000 (given)
Paid-in capital in excess of par value-common stock = 950,000-105,000-5000=840000
Paid-in capital from treasury stock = 2,500 (given)
Total paid-in capital = 2,500 + 840,000 + 50,000 + 105,000 + 950,000 = 1,947,500
Retained earnings = 458,500
Less: Treasury stock (2,500 shares) at cost = 14*2500=35,000
Total Stockholders' Equity = 1947500+458500-35000= $2371000
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