(Analysis of Equity Data and Equity Section Preparation) For a recent 2-year period, the balance sheet of Santana Dotson Company showed the following stockholders’ equity data on December 31 (in millions).

	2017	2016
Additional paid-in capital	\( 931	\) 817
Common stock	545	540
Retained earnings	7,167	5,226
Treasury stock	1,564	918
Total stockholders’ equity	\(7,079	\)5,665
Common stock shares issued	218	216
Common stock shares authorized	500	500
Treasury stock shares	34	27

Instructions

1. Answer the following questions
2. What is the par value of the common stock?
3. What is the cost per share of treasury stock on December 31, 2017, and on December 31, 2016?
4. Prepare the stockholders’ equity section on December 31, 2017.

Step by step solution

01

Meaning of stockholders’ Equity

Shareholders’ equity is generally the value of assets that a company has left after meeting its liabilities. The amount can be estimated by subtracting total liabilities from total assets.

02

Determining par value of the common stock

The par value is $2.50. This amount is obtained from either of the following

$\begin{array}{rcl}\mathbf{Determining}\mathbf{}\mathbf{par}\mathbf{}\mathbf{value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{amount}\mathbf{}\mathbf{of}\mathbf{}\mathbf{2017}& \mathbf{=}& \frac{\mathbf{Common}\mathbf{}\mathbf{Stock}}{\mathbf{Common}\mathbf{}\mathbf{stock}\mathbf{}\mathbf{share}\mathbf{}\mathbf{issued}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{545}}{\mathbf{218}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{.}\mathbf{50}\end{array}$

$\begin{array}{rcl}\mathbf{Determining}\mathbf{}\mathbf{par}\mathbf{}\mathbf{value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{2016}& \mathbf{=}& \frac{\mathbf{Common}\mathbf{}\mathbf{Stock}}{\mathbf{Common}\mathbf{}\mathbf{stock}\mathbf{}\mathbf{share}\mathbf{}\mathbf{issued}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{540}}{\mathbf{216}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{.}\mathbf{50}\end{array}$

03

Determining Cost per share of Treasury Stock

The cost of the treasury was higher in 2017.

$\begin{array}{rcl}\mathbf{The}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{share}\mathbf{}\mathbf{of}\mathbf{}\mathbf{treasury}\mathbf{}\mathbf{stock}\mathbf{}\mathbf{in}\mathbf{}\mathbf{2017}& \mathbf{=}& \frac{\mathbf{Treasury}\mathbf{}\mathbf{stock}}{\mathbf{Treasury}\mathbf{}\mathbf{stock}\mathbf{}\mathbf{shares}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{564}}{\mathbf{34}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{46}\end{array}$

$\begin{array}{rcl}\mathbf{The}\mathbf{}\mathbf{cost}\mathbf{}\mathbf{per}\mathbf{}\mathbf{share}\mathbf{}\mathbf{of}\mathbf{}\mathbf{treasury}\mathbf{}\mathbf{stock}\mathbf{}\mathbf{in}\mathbf{}\mathbf{2016}& \mathbf{=}& \frac{\mathbf{Treasury}\mathbf{}\mathbf{stock}}{\mathbf{Treasury}\mathbf{}\mathbf{stock}\mathbf{}\mathbf{shares}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{918}}{\mathbf{27}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{34}\end{array}$

04

Preparing Stockholders’ Equity section

Stockholders’ Equity (in millions of dollars)
Paid-in Capital Common Stock, $2.50 par value,500,000 shares authorized,218,000,000 shares issued, and 184,000,000 shares outstanding	$545
Additional Paid-in Capital	931
Total Paid-in capital	1,476
Retained Earnings	7,167
Total paid-in capital and retained earnings	8,643
Less: Cost of treasury stocks (34,000,000 shares)	1,564
Total stockholders’ Equity	$7,079

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