Question

Determining the Effects of Transactions on Stockholders’ Equity

Quick Fix-It Corporation was organized at the beginning of this year to operate several car repair businesses in a large metropolitan area. The charter issued by the state authorized the following stock:

Common stock, $10 par value, 98,000 shares authorized
Preferred stock, $50 par value, 8 percent, 59,000 shares authorized.

During January and February of this year, the following stock transactions were completed:

a. Sold 78,000 shares of common stock at $20 cash per share.
b. Sold 20,000 shares of preferred stock at $80 cash per share.
c. Bought 4,000 shares of common stock from a current stockholder for $20 cash per share.

Required:
Net income for 2014 was $210,000; cash dividends declared and paid at year-end were $50,000. Prepare the stockholders’ equity section of the balance sheet at December 31, 2014.

Answer 1

Quick Fix-It Corporation

Stockholders' Equity Section of the Balance Sheet at December 31, 2014

Authorized share capital:

Common stock, $10 par value, 98,000 shares

8% Preferred stock, $50 par value, 59,000 shares

Common Stock:

Issued 78,000 at 10 par value $780,000

Additional Paid-in Capital 740,000

Treasury stock (40,000)

Retained Earnings 160,000

8% Preferred Stock:

Issued 20,000 at $50 par value $1,000,000

Additional Paid-Capital 600,000

Total equity $3,240,000

Step-by-step explanation:

a) Data and Analysis:

Authorized share capital:

Common stock, $10 par value, 98,000 shares

8% Preferred stock, $50 par value, 59,000 shares

Transactions:

a. Cash $1,560,000 Common stock $780,000 Additional Paid-in Capital, Common stock $780,000

b. Cash $1,600,000 8% Preferred stock $1,000,000 Additional Paid-in Capital, 8% Preferred stock $600,000

c. Treasury stock $40,000 Additional Paid-in Capital, Common stock $40,000 Cash $80,000

Net income for 2014 = $210,000

Cash dividends 50,000

Retained earnings $160,000