Response:
Common stock = $210,000
Preferred stock = $15,000
Additional paid-in capital = $2,801,000
Treasury stock = $120,000
Retained earnings = $31,600
Rationale:
Diane's Designs has two types of stock approved: 8%, $10 par value preferred and common stock valued at $1 par.
On January 1, 2021, the balances in the respective accounts were: Common Stock $10,000, preferred stock $5,000, retained earnings $9,600.
The account balances changed due to the following transactions throughout 2021, its inaugural year: January 1-Dec. 31 Net Income $25,000
January 1 Issue of 200,000 shares of common stock at $15 each.
RECORDING OF TRANSACTIONS
Dr. Bank.......................3,000,000
Cr. Common stock.......................200,000
Cr. Additional Paid-in capital..2,800,000
February 6 Issued 1,000 preferred shares at $11 each.
RECORDING OF TRANSACTIONS
Dr. Bank.......................11,000
Cr. Preferred stock.......................10,000
Cr. Additional Paid-in capital.......1,000
October 10 Acquired 10,000 shares of its common stock at $18 each.
RECORDING OF TRANSACTIONS
Dr. Treasury Stock.......................180,000
Cr. Bank........................................................180,000
November 12 Sold 5,000 treasury shares for $20 each.
RECORDING OF TRANSACTIONS
Dr. Bank..............60,000
Cr. Treasury Stock.......................60,000
December 31 Distributed dividends totaling $3,000
Closing balances can be determined as beginning balances + year-end alterations = final balances:
Common stock = 10,000 + 200,000 = $210,000
Preferred stock = 5,000 + 10,000 = $15,000
Additional paid-in capital = 2,800,000 + 1,000 = $2,801,000
Treasury stock = 180,000 - 60,000 = $120,000
Retained earnings 9,600 + 25,000 - 3,000 = $31,600
