Question

My instructor says that Total Stockholder's Equity shoudl be 6,088,000. Where is this problem wrong? The question was Penn Company was formed on July 1, 2012. It was authorized to issue 300,000 shares of $10 par value common stock....... This question is already posted with the information but the answer had 270,700 for Total stockholders' equity and it should be 6,088,000. My question is where is the mistake at?

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Question: Penn Company was formed on July 1, 2012. It was authorized to issue 300,000 shares of $10 par val...

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Penn Company was formed on July 1, 2012.
It was authorized to issue 300,000 shares of $10 par value common stock and 100,000 shares of 8% $25 par
value, cumulative and nonparticipating preferred stock. Penn Company has a July 1–June 30 fiscal year.
The following information relates to the stockholders’ equity accounts of Penn Company.
Common Stock
Prior to the 2014–2015 fiscal year, Penn Company had 110,000 shares of outstanding common stock issued
as follows.
1. 85,000 shares were issued for cash on July 1, 2012, at $31 per share.
2. On July 24, 2012, 5,000 shares were exchanged for a plot of land which cost the seller $70,000 in 2006
and had an estimated fair value of $220,000 on July 24, 2012.
3. 20,000 shares were issued on March 1, 2013, for $42 per share.
During the 2014–2015 fiscal year, the following transactions regarding common stock took place.
November 30, 2014 Penn purchased 2,000 shares of its own stock on the open market at $39 per share.
Penn uses the cost method for treasury stock.
December 15, 2014 Penn declared a 5% stock dividend for stockholders of record on January 15, 2015,
to be issued on January 31, 2015. Penn was having a liquidity problem and could
not afford a cash dividend at the time. Penn’s common stock was selling at $52 per
share on December 15, 2014.
June 20, 2015 Penn sold 500 shares of its own common stock that it had purchased on November
30, 2014, for $21,000.
Preferred Stock
Penn issued 40,000 shares of preferred stock at $44 per share on July 1, 2013.
Cash Dividends
Penn has followed a schedule of declaring cash dividends in December and June, with payment being
made to stockholders of record in the following month. The cash dividends which have been declared since
inception of the company through June 30, 2015, are shown below.

Declaration Date Common Stock Preferred Stock
12/15/13 $0.30 per share $1.00 per share
6/15/14 $0.30 per share $1.00 per share
12/15/14 — $1.00 per share
No cash dividends were declared during June 2015 due to the company’s liquidity problems.

Retained Earnings
As of June 30, 2014, Penn’s retained earnings account had a balance of $690,000. For the fiscal year ending
June 30, 2015, Penn reported net income of $40,000.

Instructions
Prepare the stockholders’ equity section of the balance sheet, including appropriate notes, for Penn
Company as of June 30, 2015, as it should appear in its annual report to the shareholders

Answer 1

Penn Company
Stockholders’ Equity
June 30, 2015
Capital stock
preferred stock (40000*25)	1000000
Common stock (110000*10)+(5400*10)	1154000
Total capital stock		2154000
Additional paid-in capital
In excess of par-preferred (40000*(44-25))	760000
In excess of par-common (85000*(31-10))+(220000-(5000*10))+(20000*(42-10))+ (((110000-2000)*5%)*(52-10))	2821800
Less: From treasury stock (500*((21000/500)-39))	1500	3583300
Total paid-in capital		5737300
Retained earnings (690000+40000-(5400*52)-40000)		409200
Total paid-in capital and retained earnings		6146500
Less: Treasury stock (2000-500)*39		58500
Total stockholders’ equity		6088000