Question

Peeler Company was incorporated as a new business on January 1, 2017. The corporate charter approved on that date authorized the issuance of 1,100 shares of $100 par, 7% cumulative, non participating preferred stock and 14,000 shares of $5 par common stock. On January 10, Peeler issued for cash 590 shares of preferred stock at $124 per share and 4,100 shares of common stock at $80 per share. On January 20, it issued 1,300 shares of common stock to acquire a building site at a time when the stock was selling for $70 per share.

During 2017, Peeler established an employee benefit plan and acquired 500 shares of common stock at $60 per share as treasury stock for that purpose. Later in 2017, it resold 100 shares of the stock at $65 per share. On December 31, 2017, Peeler determined its net income for the year to be $40,000. The firm declared the annual cash dividend to preferred stockholders and a cash dividend of $5 per share to the common stockholders. The dividends will be paid in 2018.

Required
Develop the Stockholders’ Equity category of Peeler’s balance sheet as of December 31, 2017. Indicate on the statement the number of shares authorized, issued, and outstanding for both preferred and common stock.

Answer 1

Peeler Company

Stockholders' Equity

Peeler's Balance Sheet as of December 31, 2017

Authorized share capital:

1,100 shares of $100 par, 7% cumulative, non-participating preferred stock

14,000 shares of $5 par, common stock

Issued share capital:

590 shares of $100 par, 7% cumulative,

non-participating preferred stock $59,000

Additional paid-in capital-Preferred 14,160

5,400 shares of $5 par, Common stock 27,000

400 shares,Treasury stock (2,000)

5,000 shares outstanding, Common stock 25,000

Additional paid-in capital-Common stock 392,000

Additional paid-in capital (treasury stock) (21,500) 370,500

Retained earnings 10,870

Step-by-step explanation:

a) Data and Analysis:

January 10: Cash $73,160 Preferred stock $59,000 Additional Paid-in Capital-Preferred stock $14,160

January 10: Cash $328,000 Common stock $20,500 Additional Paid-in Capital-Common stock $307,500

January 20: Building site $91,000 Common stock $6,500 Additional Paid-in Capital-Common stock $84,500

Treasury stock $2,500 Additional Paid-in Capital-Common stock $27,500 Cash $30,000

Cash $6,500 Treasury stock $500 Additional Paid-in Capital-Common stock $6,000

Retained earnings:

Net income = $40,000

Dividends:

Preferred stock $4,130 ($59,000 * 7%)

Common stock $25,000 (5,000 * $5)

Total dividends $29,130

Retained earnings $10,870 ($40,000 - $29,130)