Trading Securities Current Asset

Stockholders’ equity items?

D Company’s December 31, 2008 unadjusted current asset section and stockholders’ equity section are as follows:

Current assets:
Cash, $150,000; Investments in trading equity securities (including $750,000 of D Company common stock), $1,000,000; Trade accounts receivable, $850,000; Inventories, $370,000; Total current assets, $2,370,000

Stockholders’ equity:
Common stock, $5,000,000; Retained earnings, $1,000,000; Total stockholders’ equity, $6,000,000

The investments and inventories are reported at their costs which approximate market values. D Company’s correct total equity at December 31, 2008 is:

a. $5,000,000; b. $6,000,000; c. $5,250,000; d. $6,750,000

Computation of stockholders’ equity on December 31, 2008:
1) $6,000,000 unadjusted balance
2) – $750,000 treasury common stock of Company D

= $5,250,000 adjusted balance

Answer: c. $5,250,000

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