Lee Corporation, a U.S. company, began operations on January 1, 2004.
During its first 3 years of operations, Lee reported net income and declared dividends as follows.

Net income Dividends declared
2004 $ 40,000 $ –0–
2005 125,000 50,000
2006 160,000 50,000

The following information relates to 2007:

Income before income tax: $240,000
Prior period adjustment: understatement of 2005 depreciation expense (before taxes): $ 25,000
Cumulative decrease in income from change in inventory methods (before taxes): $35,000
Dividends declared (of this amount, $25,000 will be paid on January 15, 2008): $100,000
Effective tax rate: 40%






Lee Corporation
Retained Earnings Statement
For the Year Ended December 31, 2007
Balance, January 1, as reported $225,000*
Correction for depreciation error (net of $10,000 tax) (15,000)
Cumulative decrease in income from change in
inventory methods (net of $14,000 tax)
(21,000)
Balance, January 1, as adjusted 189,000
Add: Net income 144,000**
333,000
Less: Dividends declared 100,000
Balance, December 31 $233,000

*($40,000 + $125,000 + $160,000) – ($50,000 + $50,000)
**[$240,000 – (40% X $240,000)]

Common stock $500
Treasury stock (-$200)
Additional paid-in principle $1000
Shares outstanding 375,940
Shares authorized 500,000
Shares in treasury 30,000

• Lee acquired a Canadian subsidiary whose sole asset is a piece of land. Lee acquired the subsidiary on 12/31/04 for the exact value of the land, CA$100,000. Lee owns 100% of the subsidiary. Go to Exchange Rates (http://www.x-rates.com) and use the historic lookup feature to determine exchange rates on 12/31/04, 12/31/05, and 12/31/06.

Prepare a statement of changes in owner’s equity and accompanying notes appropriate to the section. Note. Record the necessary journal entries before attempting to calculate other comprehensive income.

What is your Question?

You need to try to do this on your own first, then if you have a question we will try to help you.

What is your Question?

You need to try to do this on your own first, then if you have a question we will try to help you.

Please, I have two questions about this problem:

What is that item additional paid-in principle?

Where is the other coprehensive income coming from?

Thank you

1. Common stock is listed on the Balance sheet at the par value. For example is you issue 100 shares of common stock at $1 par value your Common Stock will be $100.

If you issue your shares for $5 a share your Common Stock will be $100 and the rest will go into the Additional Piad-in Capital account at $400.

Your Additional paid-in principal account is the same as Additional paid-in Capital and represents any amount received over the par value of stock that has been issued

The Retained Earnings Statement has the Unadjusted Beginning Balance
Plus or Minus any prior period adjustments
=Retained Earnings Adjusted Beginning Balance
Plus Net Income
Minus dividends
= Retained Earnings Ending Balance

Thank you very much!!

What is your Question?

You need to try to do this on your own first, then if you have a question we will try to help you.

I am confused on how the common stock of $500 and the treasury stock of -200 relate to 374,940 shares outstanding an 30,000 shares outstanding respectively in the example above. Please explain...

I am confused on how the common stock of $500 and the treasury stock of -200 relate to 374,940 shares outstanding an 30,000 shares outstanding respectively in the example above. Please explain...

30,000 shares are not outstanding -- they're treasury shares. Outstanding shares are those that are issued but are not treasury stock.

Not sure exactly what you are wanting to know. The numbers were made up for the problem so they didn't come from any place in particular.

The $500 doesn't really directly relate to the 374,940 shares outstanding. When treasury stock is purchased, it reduces the outstanding shares but it does not reduce the dollar amount in the stock account. So that $500 is how much the issued shares were issued for, which does not equal the outstanding shares. And there isn't any way to know how much anything was sold for without records, only the total of $500. (That number doesn't make much sense, so I'm assuming the dollar amounts are in thousands or something.)

The $200 is what the 30,000 shares of treasury stock were purchased by the company for. But again, no way to know what the individual purchases were, just the total.

Stockholders' equity
Paid in Capital stocks
Common Stock $500.00 375,940
Additional Paid-in Capital $1,000.00
Total paid-in-capital $1,500.00 500,000
Less: Cost of treasury stock $(200.00) 30,000
Total Stockholders' equity $1,300.00


12/31/07 Cash $500.00
Common Stock 500




12/31/07 Treasury Stock $200.00
Cash $200.00



12/31/07 Retained Earnings ( Cash Dividends Declared) $100,000.00
Dividends Payable $100,000.00

01/15/08 Dividends Payable $100,000.00
Cash 100000