Identifying and Analyzing Financial Statement Effects of Sto

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

Solution

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 346,000

During 2012, the following transactions occurred:
Jan. 5 Issued 10,000 shares of common stock for $12 cash per share.
Dr Cash 120,000
Cr Common Stock 50,000
Cr Paid-In Capital in Excess of Par Value, Common Stock 70,000
*There are now 160,000 shares of common stock issued and outstanding.

Jan. 18 Purchased 4,000 shares of common stock for the treasury at $14 cash per share.
Dr Treasury Stock 56,000
Cr Cash 56,000
*There are now 160,000 shares issued and 156,000 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
*There are now 160,000 shares issued and 157,000 shares outstanding of common stock.

July 17 Sold 500 shares of the remaining treasury stock for $13 cash per share.

Dr Cash 6,500
Dr Paid In Capital from Sale of Treasury Stock 500
Cr Common Treasury Stock 7,000
*There are now 160,000 shares issued and 157,500 shares outstanding of common stock.

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.
Dr Cash 175,000
Cr Preferred Stock 125,000
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, $25 par value, 50,000 shares authorized,
5,000 shares issued and outstanding=$125,000

Common stock, $5 par value, 350,000 shares authorized;
160,000 shares issued, 157,500 outstanding=800,000

Additional paid-in capital Paid-in capital in excess of
par value-preferred stock =50,000

Paid-in capital in excess of par value-common stock=670,000

Paid-in capital from treasury stock=2,500

Total paid-in capital=1,647,500

Retained earnings=418,500

Less: Treasury stock (2,500 shares) at cost=35,000

Total Stockholders\' Equity=$2,031,000