Question

Houghton Company has the following items: common stock, $1,600,000; treasury stock, $210,000; deferred income taxes, $250,000, realized retained earnings, $780,000 and unrealized retained earnings $500,000. What total amount should Houghton Company report as stockholders’ equity?

PLEASE SHOW WORK AND EXPLAIN WHY OR WHY NOT YOU WOULD ADD OR DEDUCT REALIZED AND UNREALIZED RETAINED EARNINGS.

Answer 1

STOCKHOLDER EQUITY

Stockholders' equity is the portion of the balancesheet that represents the capital received from investors in exchange for stock (paid-in capital), donated capital and retained earnings. Stockholders' equity represents the equity stake currently held on the books by a firm's equity investors. It is calculated either as a firm's total assets minus its total liabilities or as share capital plus retained earnings minus treasury shares.

Stockholder quity = sharecapital + retained earnings- treasury shares

Deffered tax

In the financial world, a deferred tax is one that will be paid in the future. Accountants use generally accepted accounting principles, or GAAP, in financial accounting. Deferred taxes arise because of the temporary differences between financial accounting and income tax accounting. Deferred taxes can be assets or liabilities depending on the temporary accounting difference. It is the accountant’s job to consider deferred taxes when calculating the total assets and determining the corporation’s net worth.

Retained earnings

Retained earnings refer to the percentage of net earnings not paid out as dividends, but retained by the company to be reinvested in its core business, or to pay debt. It is recorded under shareholders' equity on the balance sheet. The formula calculates retained earnings by adding net income to, or subtracting any net losses from, beginning retained earnings, and subtracting any dividends paid to shareholders.

The total amount that Houghton company should report as stockholders equity is

Stockholders equity = common stock + retained earnings( whether realized or not)-treasury stock

=1600000+780000+500000-210000==2670000

=