List the errors in the following Stockholders’ Equity section of the balance sheet prepared as of the end of the current year

List the errors in the following Stockholders’ Equity section of the balance sheet prepared as of the end of the current year:
















Stockholders’ Equity
Paid-in capital:
Preferred 2% stock, $80 par
(125,000 shares authorized and issued) . . . . . . . . . . . . . . . $10,000,000
Excess of issue price over par . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000 $ 10,500,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,700,000
Treasury stock (75,000 shares at cost) . . . . . . . . . . . . . . . . . . . . 1,755,000
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 430,000
Total paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 109,385,000
Common stock, $20 par (1,000,000 shares
authorized, 825,000 shares issued) . . . . . . . . . . . . . . . . . . . 17,655,000
Organizing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $127,340,000




Answer:
1. Retained earnings is not part of paid-in capital.
2. The cost of treasury stock should be deducted from the total stockholders’ equity.
3. Dividends payable should be included as part of current liabilities and not as part of stockholders’ equity.
4. Common stock should be included as part of paid-in capital.
5. The amount of shares of common stock issued of 825,000 times the par value per share of $20 should be extended as $16,500,000, not $17,655,000. The difference, $1,155,000, probably represents paid-in capital in excess of par.
6. Organizing costs should be expensed as Organizational Expenses when incurred and not included as a part of stockholders’ equity. One possible corrected Stockholders’ Equity section of the balance sheet using Method 1 of Exhibit 4 is as follows:

















Stockholders’ Equity
Paid-in capital:
Preferred 2% stock, $80 par (125,000
shares authorized and issued) $10,000,000
Excess of issue price over par 500,000 $ 10,500,000
Common stock, $20 par (1,000,000 shares
authorized, 825,000 shares issued) $16,500,000
Excess of issue price over par 1,155,000 17,655,000
Total paid-in capital $ 28,155,000
Retained earnings* 96,400,000
Total $124,555,000
Deduct treasury stock (75,000 shares at cost) 1,755,000
Total stockholders’ equity $122,800,000


* $96,700,000 – $300,000. Since the organizing costs should have been expensed, the retained earnings should be $300,000 less.




Ironhaus Restaurant Corporation wholesales ovens and ranges to restaurants throughout the Southwest. Ironhaus Restaurant Corporation, which had 40,000 shares of common stock outstanding, declared a 4-for-1 stock split.

a. What will be the number of shares outstanding after the split?

b. If the common stock had a market price of $300 per share before the stock split, what would be an approximate market price per share after the split?


Answer:
a. 160,000 shares (40,000 × 4)
b. $75 per share ($300 ÷ 4)