Glass Doors Inc. (GDI) is preparing the stockholders' equity section of their balance sheet. The following items occurred during the year. Which one of the following will not directly impact the stockholder's equity section of the balance sheet?

a. GDI owns securities classified as available for sale (AFS) with a cost basis of $376,000 and a fair value of $321,000. An unrealized loss was recorded of $55,000.

b. 100 shares of treasury stock were repurchased under the cost method for $7,500. The stock had a par value of $10.00 per share.

c. GDI sold 1,000 shares of common stock with a par value of $10 for $15,000.

d. GDI sold some old inventory for lower than originally paid.

d. GDI sold some old inventory for lower than originally paid.

Explanation:

Equity which is also known as shareholder equity or stockholders' equity indicates ownership interest in a company. It also shows the the amount the shareholders of the company will receive after all the debts of the company have been paid if the liquidates.

Equity has a section in the balance sheet which is usually referred to as the stockholders' equity section of the balance sheet. This section comprises of ordinary shares, preference shares, and retain earning.

From the questions, options (a) to (d) will directly affect the equity section of the balance sheet except option (d). The reason is that sales of inventory at loss directly affects and reduces the inventory under the current asset section of the balance sheet. Not the equity.

It sales of inventory will only indirectly affect the equity section because the loss on sales will be credited to the income statement which will reduce the amount of profit before tax. This will also subsequently reduce the profit after tax available for distribution or to be kept as a retained earnings which under the equity section.

Therefore, the sales of some old inventory for lower than originally paid will not affect the equity section of the balance sheet directly.