Where Is Common Stock Listed in the Stockholders' Equity Section of the Balance Sheet?
List the errors in the following Stockholders' Equity section of the balance sheet prepared as of the end of the current year.
Stockholders' Equity
Paid-in capital:
Preferred 1% stock, $200 par
(25,000 shares authorized and issued) . . . . . . . . . . . . . . . . . $5,000,000
Excess of issue price over par . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 $ 5,075,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,750,000
Treasury stock (45,000 shares at cost) . . . . . . . . . . . . . . . . . . . . . . . . 648,000
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,000
Total paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,648,000
Common stock, $14 par (800,000 shares
authorized, 500,000 shares issued). . . . . . . . . . . . . . . . . . . . . . . . 7,600,000
Organizing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,000
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,498,000
Answer:
1. Retained earnings is not part of paid-in capital.
2. The cost of treasury stock should be deducted from the total stockholders' equity.
3. Dividends payable should be included as part of current liabilities and not as part of stockholders' equity.
4. Common stock should be included as part of paid-in capital.
5. The amount of shares of common stock issued of 500,000 times the par value per share of $14 should be extended as $7,000,000, not $7,600,000. The difference, $600,000, probably represents paid-in capital in excess of par.
6. Organizing costs should be expensed when incurred and not included as a part of stockholders' equity. One possible corrected Stockholders' Equity section of the balance sheet is as follows:
Stockholders' Equity
Paid-in capital:
Preferred 1% stock, $200 par
(25,000 shares authorized and issued).................. $5,000,000
Excess of issue price over par .................................... 75,000 $ 5,075,000
Common stock, $14 par (800,000 shares authorized,
500,000 shares issued) ........................................... $7,000,000
Excess of issue price over par .................................... 600,000 7,600,000
Total paid-in capital................................................. $ 12,675,000
Retained earnings .............................................................. 41,500,000*
$ 54,175,000
Deduct treasury stock (45,000 shares at cost) ................ 648,000
Total stockholders' equity................................................. $ 53,527,000
*$41,750,000 – $250,000. Since the organizing costs should have been expensed,
the retained earnings should be $250,000 less.
Where Is Common Stock Listed in the Stockholders' Equity Section of the Balance Sheet?
Source: http://finacctng.blogspot.com/2016/10/ex-13-18-stockholders-equity-section-of.html
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