Q44PGA-3 - Horngren'S Financial And Managerial Accounting

Question

Journalizing dividend and treasury stock transactions, preparing a statement of retained earnings, and preparing stockholders’ equity

The balance sheet of Goldstein Management Consulting, Inc. at December 31, 2017, reported the following stockholders’ equity:

Common Stock—\(10 Par Value; 350,000 shares

 authorized, 32,000 shares issued and outstanding

Paid-In Capital:

160,000

\) 320,000

650,000

Retained Earnings

Total Stockholders’ Equity \( 810,000

Stockholders’ Equity

Paid-In Capital in Excess of Par—Common 330,000

Total Paid-In Capital

During 2018, Goldstein completed the following selected transactions:

Feb. 6 Declared a 15% stock dividend on common stock. The market value of 

Goldstein’s stock was \)25 per share.

15 Distributed the stock dividend.

Jul. 29 Purchased 2,300 shares of treasury stock at \(25 per share.

Nov. 27 Declared a \)0.10 per share cash dividend on the common stock outstanding.

Requirements

3. Prepare the stockholders’ equity section of the balance sheet at December 31, 2018.

Step-by-Step Solution

Answer

Total stockholders' equity of the company at the end of the year is $978,300

Step 1: Basic calculation

$\begin{array}{rcl}\mathbf{CommonStockinAfterTreasuryStock}& \mathbf{=}& \mathbf{CommonStock}\mathbf{-}\mathbf{TreasuryStock}\\ & \mathbf{=}& \mathbf{\$}\mathbf{320}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{272}\mathbf{,}\mathbf{000}\\ & & \end{array}$

Step 2: Balance sheet

Balance Sheet (Partial) Dec 31, 2018
Particulars	Amount ($)
Stockholder equity:
Common stock	$272,000
Paid-in capital-Common stock($ 330,000+ $72,000)	$402,000
Treasury Stock	$57,500
Total paid in capital	$731,500
Add: Retained earnings	$246,800
Total stockholders' equity	$978,300