Question

Question text

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.

Use negative signs with answers, when appropriate.

	Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Jan. 5	Answer		Answer		Answer		Answer		Answer
Jan. 18	Answer		Answer		Answer		Answer		Answer
Mar. 12	Answer		Answer		Answer		Answer		Answer
July. 17	Answer		Answer		Answer		Answer		Answer
Oct. 1	Answer		Answer		Answer		Answer		Answer

Income Statement
Revenue	-	Expenses	=	Net Income
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer
Answer		Answer		Answer

(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.

Stockholders' Equity
Paid-in capital
8% Preferred stock, $21 par value, 50,000 shares authorized, 5,000 shares issued and outstanding	Answer
Common stock, $5 par value, 350,000 shares authorized; 190,000 shares issued	Answer	Answer
Additional paid-in capital
Paid-in capital in excess of par value-preferred stock	Answer
Paid-in capital in excess of par value-common stock	Answer
Paid-in capital from treasury stock	Answer	Answer
Total paid-in capital		Answer
Retained earnings		Answer
		Answer
Less: Treasury stock (2,500 shares) at cost (use a negative sign with your answer)		Answer
Total Stockholders' Equity		Answer

Answer 1

(a)

	Balance Sheet									Income Statement
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital	Revenue	-	Expenses	=	Net Income
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

(b)

Stockholders' Equity
Paid-in capital
8% Preferred stock, $21 par value, 50,000 shares authorized, 5,000 shares issued and outstanding	105000
Common stock, $5 par value, 350,000 shares authorized; 190,000 shares issued	950000	1055000
Additional paid-in capital
Paid-in capital in excess of par value-preferred stock	85000
Paid-in capital in excess of par value-common stock	660000
Paid-in capital from treasury stock	1500	746500
Total paid-in capital		1801500
Retained earnings		418500
		2220000
Less: Treasury stock (2,500 shares) at cost (use a negative sign with your answer)		-37500
Total Stockholders' Equity		2182500

Working:

8% Preferred stock, $21 par value, 50,000 shares authorized, 5,000 shares issued and outstanding	=5000*21
Common stock, $5 par value, 350,000 shares authorized; 190,000 shares issued	=900000+(10000*5)	=S12+S13
Additional paid-in capital
Paid-in capital in excess of par value-preferred stock	=5000*(38-21)
Paid-in capital in excess of par value-common stock	=600000+(10000*6)
Paid-in capital from treasury stock	=(1000*2)-(500*1)	=SUM(S15:S17)
Total paid-in capital		=1055000+746500
Retained earnings		=346000+72500
		=1801500+418500
Less: Treasury stock (2,500 shares) at cost (use a negative sign with your answer)		=-2500*15
Total Stockholders' Equity		=2220000-37500