Brief Exercises

Stockholders’ Equity

Example of Stockholders’ Equity Section of the Balance Sheet

Stockholders' equity
Paid-in capital
Capital stock
Common stock, Php10 par value, 400,000 shares
authorized, 300,000 shares issued, and 284,000
shares outstanding Php3,000,000
Additional paid-in capital
In excess of par value Php2,200,000
From treasury stock 36,000 2,236,000
Total paid-in capital (Legal Capital) 5,236,000
Retained earnings 700,000
Total paid-in capital and retained earnings 5,936,000
Less: Treasury stock (16,000 shares) (384,000)
Total stockholders' equity Php5,552,000
PROBLEM

1. What is the total stockholders' equity based on the following account balances?

Common Stock P 400,000

Paid-In Capital in Excess of Par 40,000
Retained Earnings 190,000
Treasury Stock 20,000

a. P640,000
b. P630,000
c. P610,000
d. P650,000

Starr Corporation’s December 31, 2008 Balance Sheet showed the following:
8% preferred stock, Php20 par value, cumulative, 20,000 shares
authorized; 10,000 shares issued Php 200,000
Common stock, Php10 par value, 2,000,000 shares authorized;
1,300,000 shares issued, 1,280,000 shares outstanding 13,000,000
Paid-in capital in excess of par value – preferred stock 40,000
Paid-in capital in excess of par value – common stock 18,000,000
Retained earnings 5,100,000
Treasury stock (10,000 shares) 420,000

2.Starr’s total paid-in capital was

a. Php31,240,000.
b. Php31,660,000.
c. Php30,820,000.
d. Php18,040,000.
3.Starr’s total stockholders’ equity was
a. Php36,760,000.
b. Php31,240,000.
c. Php36,340,000.
d. Php35,920,000.

The following information is available for Stewart Corporation:

Common Stock (Php10 par) Php1,000,000

Paid-in Capital in Excess of Par Value—Preferred 180,000
Paid-in Capital in Excess of Stated Value—Common 600,000
Preferred Stock 550,000
Retained Earnings 750,000
Treasury Stock—Common 50,000

Instructions
Based on the preceding information, calculate each of the following:
(a) Total paid-in capital.
(b) Total stockholders' equity.

Triad Corporation’s December 31, 2008 balance sheet showed the following:
8% preferred stock, Php20 par value, cumulative, 10,000 shares authorized;
5,000 shares issued Php 100,000
Common stock, Php10 par value, 1,000,000 shares authorized; 650,000
shares issued, 640,000 shares outstanding 6,500,000
Paid-in capital in excess of par value—preferred stock 20,000
Paid-in capital in excess of par value—common stock 9,000,000
Retained earnings 2,500,000
Treasury stock (10,000 shares) 210,000

4.Triad declared and paid a Php25,000 cash dividend on December 15, 2008. If the company’s
dividends in arrears prior to that date were Php6,000, Triad’s common stockholders received
a. Php19,000.
b. Php9,000.
c. Php11,000.
d. no dividend.

5.Triad’s total paid-in capital was

a. Php15,620,000.
b. Php15,830,000.
c. Php15,410,000.
d. Php9,020,000.

6. Triad’s total stockholders’ equity was

a. Php18,380,000.
b. Php15,620,000.
c. Php18,170,000.
d. Php17,910,000.
7.Burgess Corporation began business by issuing 100,000 shares of Php5 par value common stock
for Php24 per share. During its first year, the corporation sustained a net loss of Php20,000.
The year-end balance sheet would show
a. Common stock of Php500,000.
b. Common stock of Php2,400,000.
c. Total paid-in capital of Php2,380,000.
d. Total paid-in capital of Php1,900,000.

8. Illusions, Inc. reacquired 15,000 shares of its common stock for $15 per share on June 1. On July 1 they
sold 5,000 shares for $20 per share. On August 1 they sold 5,000 shares for $12 per share. Assuming no
prior balance in the Additional Paid-in Capital From Treasury Stock Transactions account, what is the
ending balance in this account following these transactions?
A) $5,000 debit balance
B) $5,000 credit balance
C) $10,000 debit balance
D) $10,000 credit balance
Answer: D
Explanation: D) July 1 transaction includes $25,000 credit to PIC Treasury Stock; August 1 transaction
includes $15,000 debit to the account. With no prior balance—ending balance after transactions is
$10,000 credit.

9. Gertrudis Corporation has $10 par value Ordinary shares with 1,000,000 shares authorized, and
a value of $7,000,000 before purchasing 3,000 ordinary shares. The resulting number of
ordinary shares issued and outstanding is:
A) 750,000 shares issued and 697,000 shares outstanding.
B) 700,000 shares issued and 697,000 shares outstanding.
C) 750,000 shares issued and 747,000 shares outstanding.
D) 700,000 shares issued and 747,000 shares outstanding.

Answer: B

Calculations: 7,000,000 value/10 par = 700,000 shares issued

700,000 shares issued – 3,000 treasury = 697,000 shares outstanding

10. The Kendo Corporation has 10,000 shares of 10%, $75 par value, cumulative preference shares
outstanding and 50,000 shares of $5 par value ordinary shares outstanding. There are currently
two years' dividends in arrears on the preference shares. The board of directors wants to give
the ordinary shareholders a $1.50 dividend per share. The total dividends to be paid to
preference shareholders are:
A) $225,000.
B) $300,000.
C) $75,000.
D) $150,000.

Answer: A

Calculations:
 Preference first get dividends in arrears:
10,000 shares x 75 par = 750,000 total par value
750,000 x .10 = 75,00 Dividends per
0 year
Times 2 years DIA x2
Dividends in arrears 150,000
Current year dividends- must be paid before ordinary get any 75,000
dividends
Total dividends to preference 225,000

11. Sabik Corporation has had 7,500 shares of 6%, $50 par value, cumulative preference shares
outstanding as well as 28,000 shares of $10 par value ordinary shares outstanding
since it was incorporated.) During the first, second, and third years of operations,
$15,000, $18,000, and $50,000 in dividends, respectively, was paid. The dividends paid to
the ordinary shareholders of Sabik Corporation in year three amounted to:
A) $27,500.
B) $0.
C) $15,500.
D) an undetermined amount. The ordinary share dividend cannot be determined
from the given information.

Answer: C

Calculations:
Preference shareholders:
7,500 shares x 50 par = 375,000 total par value
375,000 x .06 = 22,500 Dividends per year
Year 1 Dividends paid Pref Dividends in arrears
15.000 7,500
Year 2 18,000 12,000
DIA 7,500+ 10,500 current
Year 3: 34,500 0
DIA 12,000
Current 22,500
Total to preference
Total dividends paid – paid to preference = paid
to ordinary
50,000-34,500=15,500 to ordinary

12.Adcock Corporation began business by issuing 150,000 shares of P5 par value common stock for P24 per
share. During its first year, the corporation sustained a net loss of P30,000. The year-end balance sheet
would show
a. Common stock of P750,000.
b. Common stock of P3,600,000.
c. Total paid-in capital of P3,570,000.
d. Total paid-in capital of P2,850,000.
13.The trial balance of Hackman Inc. includes the following balances: Common Stock, P39,000; Paid-in
Capital in Excess of Par, P96,000; Treasury Stock, P9,000; Preferred Stock, P30,000. Capital stock
totals
a. P69,000. C. P 165,000
b. P126,000. D. P 174,000

14. Four thousand shares of treasury stock of Meyer, Inc., previously acquired at $12 per share, are
sold at $18 per share. The entry to record this transaction will include a
a. credit to Treasury Stock for $72,000.
b. debit to Paid-In Capital from Treasury Stock for $24,000.
c. debit to Treasury Stock for $48,000.
d. credit to Paid-In Capital from Treasury Stock for $24,000.

15. Treasury stock that had been purchased for P5,400 last month was reissued this month for P7,500. The
journal entry to record the reissuance would include a credit to
a. Treasury Stock for P7,500
b. Paid-In Capital from Treasury Stock for P7,500
c. Paid-In Capital in Excess of Par/Common for P2,100
d. Paid-In Capital from Treasury Stock for P2,100

16. A corporation purchased 1,000 shares of its P5 par common stock at P10 and subsequently sold 500 of
the shares at P20. What is the amount of revenue realized from the sale?
a. P0 c. P 2,500
b. P5,000 d. P 10,000