# Stockholders’ Equity section of balance sheet List the errors in the following Stockholders’ Equity section of the balance sheet prepared as of the end of the current year:

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

Chapter
Section

### Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 13, Problem 21E
Textbook Problem
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## Stockholders’ Equity section of balance sheetList the errors in the following Stockholders’ Equity section of the balance sheet prepared as of the end of the current year:

To determine

List the identified errors in the stockholders’ equity section of the balance sheet.

### Explanation of Solution

Stockholders’ Equity Section: It is refers to the section of the balance sheet that shows the available balance of stockholders’ equity as on reported date at the end of the financial year.

List the identified errors in the stockholders’ equity section of the balance sheet.

• Common stock is a paid in- capital, which should be reported immediately after preferred stock’s excess of issue price over par.
• Retained earnings are a part of stockholders’ equity, but it is not a part of paid in capital. Retained earnings must be presented after paid in capital.
• Treasury stock refers to the shares that are reacquired by the corporation that are already issued to the stockholders, but reacquisition does not signify retirement. Hence, the cost of treasury stock should be deducted from the total of paid in capital and retained earnings.
• Dividends payable is a liability, which should reported on the liabilities section of the balance sheet, but not on the stockholders’ equity section.
• Common stock amount must be $16,500,000(825,000 shares issued×$20 par)  but not $17,655,000. The difference of$1,155,000  ($17,655,000$16,500,000) may represent excess of issue price over par.
• Organizing costs is an expense, which should be expensed as organizational expense. Hence, it must not be included as a part of stockholders’ equity section. Instead organizational expense of $300,000 can be deducted from reported retained earnings of$96,700,000. Thereby, retained earnings can be corrected and reported as $96,400,000 ($96,700,000$300,000) instead of$96,700,000

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