On March 31,2018,Water Front,Inc.shows the following data on its balance sheet: $$\begin{array} { | l | r | }
\hline \text { Stockholders' Equity } & \
\hline \text { Common Stock, } \$ 1 \text { Par, 1,180,000 shares authorized } & \
\hline 240,000 \text { shares issued, 230,000 shares outstanding } & \$ 240,000 \
\hline \text { Paid-In Capital in Excess of Par-Common } & 2,560,000 \
\hline \text { Retained Earnings } & 4,790,000 \
\hline \text { Treasury stock, 15,000 shares at } \$ 40 & \$ 600,000 \
\hline \text { Total Stockholder's Equity } & \$ 6,990,000 \
\hline
\end{array}$$ Assume that Water Front sells 1500 shares of treasury stock at $33 per share.What is total stockholders' equity after this transaction?

Question

On March 31,2018,Water Front,Inc.shows the following data on its balance sheet: $$\begin{array} { | l | r | } 
\hline \text { Stockholders' Equity } & \
\hline \text { Common Stock, } \$ 1 \text { Par, 1,180,000 shares authorized } & \
\hline 240,000 \text { shares issued, 230,000 shares outstanding } & \$ 240,000 \
\hline \text { Paid-In Capital in Excess of Par-Common } & 2,560,000 \
\hline \text { Retained Earnings } & 4,790,000 \
\hline \text { Treasury stock, 15,000 shares at } \$ 40 & \$ 600,000 \
\hline \text { Total Stockholder's Equity } & \$ 6,990,000 \
\hline
\end{array}$$ Assume that Water Front sells 1500 shares of treasury stock at $33 per share.What is total stockholders' equity after this transaction?

Quizplus · Accepted Answer

When Water Front sells 1,500 shares of treasury stock at $33 per share, it receives $49,500 (1,500 shares * $33). This amount does not directly affect the total stockholders' equity as the sale of treasury stock is a transaction within equity. However, the cost of the treasury stock (15,000 shares at $40 = $600,000) will be reduced by the cost of the 1,500 shares sold. Since the shares were originally purchased for $40 each, the cost of the 1,500 shares is $60,000 (1,500 shares * $40). The sale at $33 per share for a total of $49,500 results in a loss of $10,500 ($60,000 - $49,500) compared to the cost. This loss reduces the additional paid-in capital or retained earnings, depending on the accounting policy of the company. Therefore, the total stockholders' equity after the sale is the original equity of $6,990,000 plus the proceeds from the sale of $49,500, minus the loss of $10,500, resulting in $7,029,000. However, since this option is not available, it appears there was a mistake in my calculation. The correct approach to find the answer given the options would involve recognizing the proceeds from the sale increase the stockholders' equity. The correct calculation should consider the increase in equity due to the sale proceeds without mistakenly subtracting the cost of treasury stock sold, as this cost was already accounted for in the treasury stock account. Therefore, the correct answer involves adding the proceeds from the sale to the original stockholders' equity, which aligns with option B) $7,039,500, acknowledging an error in the initial explanation.

On March 31,2018,Water Front,Inc Assume That Water Front Sells 1500 Shares of Treasury Stock