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18 September, 09:18

Presented below is the stockholders' equity section of Mead Corporation at December 31, 2006: Common stock, par value $20; authorized 75,000 shares; issued and outstanding 45,000 shares $ 900,000 Paid-in capital in excess of par value 250,000 Retained earnings 500,000 $1,650,000 During 2007, the following transactions occurred relating to stockholders' equity: 3,000 shares were reacquired at $28 per share. 3,000 shares were reacquired at $35 per share. 1,800 shares of treasury stock were sold at $30 per share. For the year ended December 31, 2007, Mead reported net income of $450,000. Assuming Mead accounts for treasury stock under the cost method, what should it report as total stockholders' equity on its December 31, 2007, balance sheet? a. $1,965,000. b. $1,961,400. c. $1,957,800. d. $1,515,000.

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  1. 18 September, 09:41
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    a. $1,965,000

    Explanation:

    The computation of total stockholders' equity is shown below:-

    Paid-in capital from Treasury Stock = 1,800 * ($30 - $28)

    = 1,800 * $2

    = $3,600

    Retained earning = $500,000 + $450,000

    = $950,000

    Treasury stock = ((3,000 - 1,800) * $28) + (3000 * 35)

    = (1,200 * $28) + (3000 * 35)

    = $33,600 + $105,000

    = $138,600

    Total stockholders' equity on December 31, 2007 = Common stock + Paid-in capital in excess of par value + Paid-in capital from Treasury Stock + Retained earnings - Treasury stock

    = $900,000 + 250,000 + $3,600 + $950,000 - $138,600

    = $2,103,600 - $138,600

    = $1,965,000

    So, we have applied the above formula.
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