Answer:
FINISHING TOUCHES
Balance Sheet December 31, 2015
(Stockholders’ Equity Section)
Stockholders’ equity:
Common stock = $100,000
Preferred stock = $30,000
Treasury stock = -$5,500
Additional paid-in capital = $3,216,000
Total paid-in capital = $3,340,500
Retained earnings = $63,100
(Preferred stock = -$,30,000)
Total stockholders’ equity = $3,373,600
Explanation:
a) 100,000 Common stock issued at $35 per share with $1 par is valued at $1 in the Common Stock section while the difference $34 $(35 - 1) is taken to the Additional paid-in capital at 100,000 x $34.
b) 3,000 Preferred Stock issued at $11 per share with $10 par is valued at $10 in the Preferred Stock while the difference $1 $(11 - 10) is taken to the Additional paid-in capital at 3,000 x $1.
c) Treasury stock is the repurchase of stock by the company. It is a contra account to the equity accounts. It is therefore deducted from the equity section. Two methods exist for its treatment: the cost method and the par value treatment. We used the par value treatment.
This involves stating the par value movements in the Treasury stock while the additional loss or additional gain is taken to the Additional Paid-in Capital section.
On the other hand, the cost method treats the cost of repurchase in the Treasury stock.
d) Additional Paid-in Capital (APIC) account records the above par value received. It is also where the above par value is deducted for Treasury Stock.
e) Retained Earnings represent the net income after paying dividends to common stockholders and preferred stockholders.
f) To get the total stockholders' equity, the preferred stock is deducted. Holders of preferred stock are not equity holders.
