You are engaged to perform the first audit of the Marble Company for the year ended December 31, 2007. You find the following account balances related to stockholders’ equity:

Preferred stock, $100 par ...... $ 30,000

Common stock, $10 par ........ 65,000

Capital surplus ........... (16,400)

Retained earnings ......... 150,000

Because of the antiquated terminology and negative balance, you examine the Capital Surplus account first and find in it the following entries:

Credit (Debit)

Premium on common stock ............. $ 27,100

Capital from donated land .............. 16,000

Treasury stock (500 common shares at cost) ....... (7,500)

Premium on preferred stock ............. 3,000

Stock dividend (50%) ............... (20,000)

Prior period adjustment (net of income taxes) ..... (12,000)

Loss from fire (uninsured), 2006 ........... (18,000)

Property dividend declared ............. (6,000)

Cash dividends declared ............... (24,000)

Balance ..................... $(41,400)

Your examination of the Preferred Stock and Common Stock accounts reveals that the amounts shown correctly state the total par value of the issued capital stock. The Retained Earnings account contains the accumulated earnings of the company, with the exception of any items of retained earnings that were inappropriately debited or credited to the Capital Surplus account.

Required

1. Prepare whatever journal entries are necessary to eliminate the Capital Surplus account and to correct the Marble Company’s stockholders’ equity accounts.

2. Prepare a corrected stockholders’ equity section of Marble Company’s December 31, 2007 balance sheet. Include any related notes to its financial statements.