Question

Knapp Industries began business on January 1, 2021 by issuing all of its 1,350,000 authorized shares of its $1 par value common stock for $26 per share. On June 30, Knapp declared a cash dividend of $2.50 per share to stockholders of record on July 31. Knapp paid the cash dividend on August 30. On November 1, Knapp reacquired 270,000 of its own shares of stock for $31 per share. On December 22, Knapp resold 135,000 of these shares for $37 per share.

Required:



Prepare the stockholders' equity section of the balance sheet as of December 31, 2021 assuming that the net income for the year was $6,000,000.

Answer 1

To prepare the stockholders' equity section of the balance sheet as of December 31, 2021 for Knapp Industries, we need to consider the initial stock issuance, cash dividend, share reacquisition, and net income.

The stockholders' equity section includes common stock, paid-in capital in excess of par, treasury stock, retained earnings, and the total stockholders' equity.

Step-by-step explanation:

Preparing the stockholders' equity section of the balance sheet as of December 31, 2021:

1. First, the common stock is initially issued for $26 per share, resulting in a total of $35,100,000 ($26 x 1,350,000 shares).
2. Next, the cash dividend of $2.50 per share is declared on June 30, resulting in a total cash outflow of $3,375,000 ($2.50 x 1,350,000 shares).
3. On November 1, Knapp reacquires 270,000 of its own shares for $31 per share, resulting in a total cash outflow of $8,370,000 ($31 x 270,000 shares).

Based on the transactions, here is the stockholders' equity section:

• Common Stock ($1 par value, 1,350,000 shares issued): $1,350,000
• Paid-in Capital in Excess of Par: $33,750,000
• Treasury Stock (270,000 shares): ($8,370,000)
• Retained Earnings: $6,000,000
• Total Stockholders' Equity: $32,730,000