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.

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

• Working forms part of the answer
• Amounts are in $
• Requirement 1

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

• The above amount are derived after working. The working for above amounts are provided/shown in Requirement 2
• Requirement 2

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