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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Restrictions on Retained Earnings

At December 31, 2018, Longfellow Clothing had $226,700 of retained earnings, all unrestricted. During 2019, Longfellow earned net income of S92.000 and declared and paid cash dividends on common stock of $21,800. During 2019, Longfellow sold a bond issue with a covenant that required Longfellow to transfer from retained earnings to restricted retained earnings an amount equal to the principal of the bond issue, $50,000. At December 31, 2019, Longfellow has 30,000 shares of $5 par common stock issued and outstanding. Additional paid-in capital-common stock is $236,500.

Required:

Prepare the stockholders' equity portion of Longfellow’s December 31, 2019 balance sheet.

To determine

Concept introduction:

Stockholder’s Equity:

Stockholders Equity includes the paid up amount of all stocks (Common as well as preferred) issued and retained earnings balance. It represents the amount owed to the stockholders by the company. Stockholders Equity is the section of balance sheet’s equity part.

To prepare:

The Stockholder’s Equity Section as on Dec. 31, 2019.

Explanation

Stockholders Equity includes the paid up amount of all stocks (Common as well as preferred) issued and retained earnings balance. It represents the amount owed to the stockholders by the company. Stockholders Equity is the section of balance sheet’s equity part.

The two ways the company can distribute its assets to the shareholder’s before its liquidation are as follows:

The Stockholder’s Equity Section as on Dec...

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