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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Shareholders’ Equity Herrera Manufacturing Corporation completed the following transactions during its first year of operation, 2019:

  1. 1. The state authorized the issuance of 30,000 shares of $5 par common stock; 15,000 shares were issued at $22 per share,
  2. 2. The state authorized the issuance of 6,000 shares of $50 par preferred stock. All 6,000 shares were issued at $70 per share.
  3. 3. Herrera reacquired 1,000 shares of its outstanding common stock at $18 per share. The cost method is used to account for treasury stock.
  4. 4. Herrera invested $50,000 of excess cash, not needed to finance operations, in long-term available-for-sale debt securities. At year-end, the market value of these securities was $47,500.
  5. 5. Herrera sold 500 shares of treasury stock for $23 per share.
  6. 6. Net income for the first year of operations was $16,000. No dividends were declared.

Required:

Prepare the shareholders’ equity section (and any related notes to the financial statements) of Herrera’s balance sheet as of December 31, 2019.

To determine

Compute the stockholder’s equity section for Company H

Explanation

Stockholders’ Equity Section:

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

Compute the stockholder’s equity section for Company H

Company H
Shareholder's equity
For the  year ended December 31,2019
ParticularsAmount in $
Contributed Capital: 
  Preferred stock, $50 par (6,000 shares authorized, issued,  and outstanding)300000

Common stock, $5 par (30,000 shares authorized, 15,000 shares

issued of which 500 shares are being held as treasury stock)

           75,000
Additional paid-in capital: 
     On preferred stock (1)         120,000
     On common stock (2)         255,000
     From treasury stock (3)             2,500
Total contributed capital         752,500
Retained earnings           16,000
Accumulated other comprehensive income (loss): 
    Unrealized decrease in value of available-for-sale securities         (25,000)
Total contributed capital, retained earnings, and accumulated other comprehensive income         766,000
Less: Treasury stock at cost (500 common shares at $18)             9,000
Total Shareholders’ Equity       757,000

 (Table 1)

Working notes:

1) Calculate the value of preferred stock:

V

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