The stockholders' equity of Verrecchia Company at December 31, 2013, follows:

Common stock, $5 par value, 350,000 shares authorized; 250,000 shares issued and outstanding $1,250,000

Paid-in capital in excess of par value 600,000

Retained earnings 346,000

During 2014, the following transactions occurred:

Jan. 5 Issued 10,000 shares of common stock for $12 cash per share.

Jan. 18 Repurchased 4,000 shares of common stock at $15 cash per share.

Mar. 12 Sold one-fourth of the treasury shares acquired January 18 for $18 cash per share.

July 17 Sold 500 shares of the remaining treasury stock for $13 cash per share.

Oct. 1 Issued 5,000 shares of 8%, $25 par value preferred stock for $35 cash per share. This is the first issuance of preferred shares from the 50,000 authorized shares.

Required:

(a) Use the financial statement effects template to indicate the effects of each transaction.

Question

Business

Jamie Gibbs

29 May, 16:07

The stockholders' equity of Verrecchia Company at December 31, 2013, follows:

Common stock, $5 par value, 350,000 shares authorized; 250,000 shares issued and outstanding $1,250,000

Paid-in capital in excess of par value 600,000

Retained earnings 346,000

During 2014, the following transactions occurred:

Jan. 5 Issued 10,000 shares of common stock for $12 cash per share.

Jan. 18 Repurchased 4,000 shares of common stock at $15 cash per share.

Mar. 12 Sold one-fourth of the treasury shares acquired January 18 for $18 cash per share.

July 17 Sold 500 shares of the remaining treasury stock for $13 cash per share.

Oct. 1 Issued 5,000 shares of 8%, $25 par value preferred stock for $35 cash per share. This is the first issuance of preferred shares from the 50,000 authorized shares.

Required:

(a) Use the financial statement effects template to indicate the effects of each transaction.

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Answers (1)

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Erickson · Answer 1

Verrecchia Company

Financial Statement effects:

1. Jan. 5 Issued 10,000 shares of common stock for $12 cash per share:

Assets (Cash) would increase by $120,000

Equity (Common Stock) would increase by $120,000

2. Jan. 18 Repurchased 4,000 shares of common stock at $15 cash per share.

Assets (Cash) would decrease by $60,000

Equity (Common Stock) would decrease by $60,000

3. Mar. 12 Sold one-fourth of the treasury shares acquired January 18 for $18 cash per share.

Assets (Cash) would increase by $18,000

Equity (Common Stock) would increase by $18,000

4. July 17 Sold 500 shares of the remaining treasury stock for $13 cash per share.

Assets (Cash) would increase by $6,500

Equity (Common Stock) would increase by $6,500

5. Oct. 1 Issued 5,000 shares of 8%, $25 par value preferred stock for $35 cash per share.

Assets (Cash) would increase by $175,000

Equity (Preferred Stock) would increase by $125,000

Equity (Additional Paid-in Capital - Preferred) would increase by $50,000

Explanation:

The Financial Statement effects of each transaction is a reflection of how each transaction affects at least two opposite elements of the financial statement. Every transaction affects the elements of the financial statement in one way or another, which enables the accounting equation to remain in balance.

For example, a transaction may increase the assets and also increase either the liabilities or equity side of the balance sheet.

In our example, the transactions affected only the balance sheet. This means that each transaction increases or decreases the assets, liabilities, or equity sections.