Question

On January 1, 2014, GOT Company had Common Stock of 800,000 authorized shares with P20 par value. The Stockholders' Equity accounts on January 1, 2014 had the following balances:

Common Stock - P2,000,000
Additional Paid-in Capital - P600,000 Retained Earnings - P1,200,000
Transactions during the year and other information relating to shareholders' equity accounts were:
1. On January 5, GOT issued at P54 per share, 10,000 preferred stock with P50 par value and 9% cumulative. GOT had 400,000 authorized preferred shares.
2. On February 1, GOT reacquired 10,000 common shares at P32 per share.
3. On April 30, GOT sold 25,000 common stock at P34 per share. 4. On June 18, GOT declared a cash dividend of P2 per common stock, payable on July 12, to shareholders of record on July 1.
5. On November 19, GOT sold 5,000 shares of treasury for P42 per share.
6. On December 15, GOT declared a yearly cash dividend on preferred stock, payable on January 14, 2015 on shareholders of record on December 31, 2014.
7. Net income for the year was P800,000
8. GOT appropriated earnings equal to the cost of treasury shares.
Determine the balances of the following accounts on December 31, 2014.
a.) Preferred Stock
b.) Common Stock
c.) Additional Paid-in Capital
d.) Treasury Stock
e.) Retained Earnings
f.) Shareholder's Equity

Answer 1

The balances of the shareholder's equity accounts for GOT Company as of December 31, 2014, depend on the transactions throughout the year. The accounts include Preferred Stock, Common Stock, Additional Paid-in Capital, Treasury Stock, Retained Earnings, and Shareholder's Equity. Different corporate events such as stock issuance, dividends, and resale of treasury stock would impact these balances.

Step-by-step explanation:

Calculating the balances of the various shareholder's equity accounts for GOT Company as of December 31, 2014, involves understanding several transactions:

• Issuance of preferred and common stock
• Reacquisition and resale of treasury stock
• Declaration and payment of dividends
• Appropriation of retained earnings

On January 5, GOT issued 10,000 preferred shares at P54 per share, which is P4 above the par value of P50. The Preferred Stock account increases by 10,000 shares × P50 par value = P500,000, and the Additional Paid-in Capital account increases by 10,000 shares × P4 premium = P40,000.

On February 1, GOT reacquired 10,000 common shares at P32 per share, creating a Treasury Stock account with a balance of P320,000 (10,000 shares × P32).

On April 30, GOT sold 25,000 common stock at P34 per share, which is P14 above the par value. The Common Stock account increases by 25,000 shares × P20 par value = P500,000, and the Additional Paid-in Capital account increases by 25,000 shares × P14 = P350,000.

On June 18, a cash dividend of P2 per common stock was declared, and on December 15, a yearly dividend on preferred stock was also declared. These dividends create a reduction in the Retained Earnings account.

On November 19, GOT sold 5,000 treasury shares for P42 per share, which affects the Treasury Stock and Additional Paid-in Capital accounts.

Finally, we adjust for the Net income for the year and the appropriation for the cost of treasury shares, which will affect the Retained Earnings account.

As a result, the balances in the shareholder's equity accounts on December 31, 2014, would be calculated based on the initial balances and these transactions, which involve tracking the changes in each account due to the various corporate events described.