Problem 15-12 Penn Company was formed on July 1, 2012. It was authorized to issu
ID: 2711026 • Letter: P
Question
Problem 15-12 Penn Company was formed on July 1, 2012. It was authorized to issue 304,900 shares of $10 par value common stock and 100,400 shares of 8% $24 par value, cumulative and nonparticipating preferred stock. Penn Company has a July 1–June 30 fiscal year. The following information relates to the stockholders’ equity accounts of Penn Company. Common Stock Prior to the 2014–2015 fiscal year, Penn Company had 110,400 shares of outstanding common stock issued as follows. 1. 90,600 shares were issued for cash on July 1, 2012, at $31 per share. 2. On July 24, 2012, 5,000 shares were exchanged for a plot of land which cost the seller $75,400 in 2006 and had an estimated fair value of $223,400 on July 24, 2012. 3. 14,800 shares were issued on March 1, 2013, for $41 per share. During the 2014–2015 fiscal year, the following transactions regarding common stock took place. November 30, 2014 Penn purchased 3,000 shares of its own stock on the open market at $38 per share. Penn uses the cost method for treasury stock. December 15, 2014 Penn declared a 5% stock dividend for stockholders of record on January 15, 2015, to be issued on January 31, 2015. Penn was having a liquidity problem and could not afford a cash dividend at the time. Penn’s common stock was selling at $51 per share on December 15, 2014. June 20, 2015 Penn sold 400 shares of its own common stock that it had purchased on November 30, 2014, for $22,500. Preferred Stock Penn issued 41,300 shares of preferred stock at $45 per share on July 1, 2013. Cash Dividends Penn has followed a schedule of declaring cash dividends in December and June, with payment being made to stockholders of record in the following month. The cash dividends which have been declared since inception of the company through June 30, 2015, are shown below. Declaration Date Common Stock Preferred Stock 12/15/13 $0.48 per share $1 per share 6/15/14 $0.48 per share $1 per share 12/15/14 $1 per share No cash dividends were declared during June 2015 due to the company’s liquidity problems. Retained Earnings As of June 30, 2014, Penn’s retained earnings account had a balance of $707,300. For the fiscal year ending June 30, 2015, Penn reported net income of $42,300. Prepare the stockholders’ equity section of the balance sheet, for Penn Company as of June 30, 2015, as it should appear in its annual report to the shareholders. (Enter account name only and do not provide descriptive information.)
Explanation / Answer
STOCKHOLDERS EQUITY SECTION OF THE BALANCESHEET
AS ON JUNE 30,2015
WORKING NOTE
1.EQUITY SHARE CAPITAL=90,600*10+5,000*10+14,800*10-(3,000*10)+400*10
=$10,78,000
2.PREFERENCE SHARE CAPITAL=41,300*24=$9,91,200
3.RETAINED EARNINGS=
4.SECUTITY PREMIUM=90,600*21+14,800*31+18500-(3,000*28)+41,300*24
=$32,87,100
PARTICULARS AMOUNT($) EQUITY SHARE CAPITAL(NOTE 1) 10,78,000 PREFERENCE SHARE CAPITAL(NOTE2) 9,91,200 RETAINED EARNINGS(NOTE 3) 7,49,600 SECURITY PREMIUM(NOTE 4) 32,87,100