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; 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.
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
Transaction	Cash Asset	+	Noncash Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital
Jan. 5	Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00
Jan. 18	Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00
Mar. 12	Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00
July. 17	Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00
Oct. 1	Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00

Income Statement
Revenue	-	Expenses	=	Net Income
Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00
Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00
Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00
Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00
Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00		Answer 1.00 points out of 1.00

(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, $25 par value, 50,000 shares authorized, 5,000 shares issued and outstanding	$Answer 1.00 points out of 1.00
Common stock, $5 par value, 350,000 shares authorized; 160,000 shares issued	Answer 1.00 points out of 1.00	$Answer 1.00 points out of 1.00
Additional paid-in capital
Paid-in capital in excess of par value-preferred stock	Answer 1.00 points out of 1.00
Paid-in capital in excess of par value-common stock	Answer 1.00 points out of 1.00
Paid-in capital from treasury stock	Answer 0.00 points out of 1.00	Answer 0.00 points out of 1.00
Total paid-in capital		Answer 0.00 points out of 1.00
Retained earnings		Answer 0.00 points out of 1.00
		Answer 0.00 points out of 1.00
Less: Treasury stock (2,500 shares) at cost (use a negative sign with your answer)		Answer 0.00 points out of 1.00
Total Stockholders' Equity		$ Answer 0.00 points out of 1.00

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Partially correct

Answer 1

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