The stockholders’ meeting for Percival Corporation has been in progress for some time. The chief financial officer for Percival is presently reviewing the company’s financial statements and is explaining the items that comprise the stockholders’ equity section of the balance sheet for the current year. The stockholders’ equity section of Percival Corporation at December 31, 2020, is as follows.

At the meeting, stockholders have raised a number of questions regarding the stockholders’ equity section.

Instructions

With the class divided into groups, answer the following questions as if you were the chief financial officer for Percival Corporation.

a. “I thought the common stock was presently selling at $29.75, but the company has the stock stated at $1 per share. How can that be?”

b. “Why is the company buying back its common stock? Furthermore, the treasury stock has a debit balance because it is subtracted from stockholders’ equity. Why is treasury stock not reported as an asset if it has a debit balance?”

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Percival Corporation Balance Sheet (partial) December 31, 2020 Stockholders' equity Paid-in capital Capital stock Preferred stock, authorized 1,000,000 shares, $100 par value, 6,000 shares issued and outstanding Common stock, authorized 5,000,000 shares, $1 par value, 3,000,000 shares issued, and 2,700,000 outstanding $ 600,000 3,000,000 $ 3,600,000 Total capital stock Additional paid-in capital In excess of par-preferred stock In excess of par-common stock Total additional paid-in capital 50,000 25,000,000 25,050,000 Total paid-in capital 28,650,000 Retained earnings 900,000 29,550,000 Total paid-in capital and retained earnings Less: Treasury stock (300,000 common shares) 9,300,000 Total stockholders' equity $20,250,000