Question

North Wind Aviation received its charter during January authorizing the following capital stock:

Preferred stock: 8 percent, par $10, authorized 20,000 shares.
Common stock: par $1, authorized 50,000 shares.
The following transactions occurred during the first year of operations in the order given:
1. Issued a total of 39,000 shares of the common stock for $16 per share.
2. Issued 12,000 shares of the preferred stock at $17 per share.
3. Issued 2,900 shares of the common stock at $21 per share and 1,200 shares of the preferred stock at $17.
4. Net income for the first year was $47,000, but no dividends were declared.
Required: Prepare the stockholders’ equity section of the balance sheet at December 31.

Answer 1

The stockholders' equity section of the balance sheet for North Wind Aviation includes common and preferred stock par values, additional paid-in capital for each, and retained earnings, amounting to a total of $956,300.

Step-by-step explanation:

Stockholders' Equity Section Preparation

To prepare the stockholders' equity section of the balance sheet for North Wind Aviation, we need to calculate the contributed capital and retained earnings as of December 31, considering the company's issuance of common and preferred stock and the net income earned during the year.

1. Common Stock: 39,000 shares × $1 par = $39,000 par value. The additional paid-in capital for these shares is 39,000 shares × ($16 - $1) = $585,000. Then, 2,900 shares × $1 par = $2,900 par value, with additional paid-in capital being 2,900 shares × ($21 - $1) = $58,000.
2. Preferred Stock: 12,000 shares × $10 par = $120,000 par value. The additional paid-in capital for these shares is 12,000 shares × ($17 - $10) = $84,000. Then, 1,200 shares × $10 par = $12,000 par value, with additional paid-in capital being 1,200 shares × ($17 - $10) = $8,400.
3. Retained Earnings: Given that no dividends were declared, retained earnings will just be the net income for the year, which is $47,000.

On the balance sheet, the stockholders' equity section would show:

• Common Stock (41,900 shares × $1 par) = $41,900
• Additional Paid-In Capital, Common Stock = $643,000
• Preferred Stock (13,200 shares × $10 par) = $132,000
• Additional Paid-In Capital, Preferred Stock = $92,400
• Retained Earnings = $47,000

The total stockholders' equity would be the sum of these amounts: $41,900 + $643,000 + $132,000 + $92,400 + $47,000 = $956,300.