What is the amount of Common Stock at the end of year 2?
Question:
Total Assets$ 3,800,000$ 4,000,000
Total Liabilities$ 2,000,000 2,200,000
Total Stockholders’ Equity1800000 $ 1,800,000
Retained Earnings $ 900,000$ ? .
Sales Revenue$10,700,000
Cost of Goods Sold$ 8,100,000
Total Operating & Other Expenses & Losses$ 2,500,000
Assume that Staples’ balance sheet includes only two stockholders equity accounts: Retained earnings and Common Stock. What is the amount of Common Stock at the end of year 2?
please explain how to do it
Answer:
I hope you're not gonna major in accounting. If you are, DON'T!
So, since I'm taking the stance you aren't. Why should you care about Debits and Credits right? You'll be a lawyer anyways :-)
Here:
Sales = $10,700,000
subtract COGS = $8,100,000
subtract Expenses = $2,500,000
Net Income = $100,000
Add the net income of $100,000 to the beginning retained earnings of $900,000. Thus end of the year R/E is $1 million. Retained earnings is an accumulation of earnings and losses.
Therefore, Total Stockholder's Equity of $1,800,000 minus Retained Earnings of $1 million = your common stock
Common Stock = $800,000. In other words, Staples would have purchased some of their common stock back.
You could also answer this $900,000 of Common Stock and ($100,000) of Treasury Stock. If your teacher says that is wrong. You then say, "no where in this problem does it ever say that Staples RETIRED the common stock they repuchased thus those shares are supposed to recorded as Treasury Stock.
The amount of common stock isn't going to change from year one through year two unless either more stock is issued or some stock is retired.
More Questions & Answers...