Question

Returning to Warner Corporation from the previous problem:

As of December 31, 2018, Warner Corporation reported the following:

Dividends Payable: $20,000

Treasury Stock: $600,000

Paid-in-Capital, Common Stock: $20,000

Paid-in-Capital, Other Shares: $4,000,000

Retained Earnings: $3,000,000

Now, assume Warner Corp performed the following transactions in 2019:

Half of the treasury stock was resold for $240,000;

net income was $600,000;

cash dividends declared were $1,500,000;

stock dividends declared were $500,000.

(Assume that the Treasury Shares were resold as Common Shares)

What would Warner's shareholders' equity be as of December 31, 2019?

1- Amount is not shown

2- 5,760,000

3- 5,820,000

4- 6,760,000

Answer 1

Paid In Capital - Common Stock Paid In Capital - Other Shares Total Paid In Capital Add: Retained Earnings Less: Dividends Payable Less: Treasury Stoclk Stockholders' Equity as on Dec.31, 2018 Adjustments for 2019: Resale of Treasury Stock Less: Paid in Capital- Reduction due to resale of Treasury Stock (S300000- S240000) Add: Net Income Less: Cash Dividends Less: Stock Dividends Balance as on Dec.31, 2019 20,000.00 S 4,000,000.00 $ 4,020,000.00 $ 3,000,000.00 s (20,000.00) S (600,000.00) S 6,400,000.00 S300,000.00 S 60,000.00) S 600,000.00 S (1,500,000.00) S (500,000.00) S 5,240,000.00 So Option 1 is Correct.