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    Aunty's Avatar
    Aunty Posts: 1, Reputation: 1
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    #1

    Feb 11, 2008, 12:34 PM
    Identify the effects of the following transactions on total stockholder equity
    I'm trying to help my niece in college with her accounting problem. Can anyone help? Here's what she has to figure out.
    Identify the effects of the following transactions on total stockholder equity. Each transaction is independent.
    a) A 10% stock dividend. Before the dividend, 500,000 shares of $1 par common stock were outstanding; market value was $6 at the time of the dividend.
    b) A 2-for-1 stock split. Prior to the split, 60,000 shares of $4 par common were outstanding
    c) Purchase of 1,000 shares of treasury stock (par value $0.50) at $5 per share.
    d) Sales of 600 shares of $1 par treasury stock for $5 per share. Cost of the treasury stock was $2 per share.

    If anyone can help with how to solve this that would be great.

    Thanks!
    ddrahota's Avatar
    ddrahota Posts: 6, Reputation: 0
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    Feb 11, 2008, 07:06 PM
    a) no effect on total stockholder's equity
    b) no effect, nor is a journal entry even needed. You simply have double the amount of shares at half the par value
    c) The purchase of treasury stock reduces stockholder's equity by the amount paid for the treasury stock. It is subtracted from total paid-in-capital and retained earnings to arrive at total stockholder's equity. In this case, stockholder's equity would be reduced by $5000.
    d) The sale of treasury stock ALWAYS increases total assets and stockholder's equity.

    Hope that helps. If you need it to be a little more in-depth, I'd be happy to assist.
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