Question

Shelby Corporation was organized in January to operate an air-conditioning sales and service business. The charter issued by the state authorized the following capital stock:

Common stock, $1 par value, 200,000 shares.
Preferred stock, $10 par value, 6 percent, 50,000 shares.
During January and February, the following stock transactions were completed:
a. Collected $196,000 cash and issued 14,000 shares of common stock.
b. Issued 12,000 shares of preferred stock at $24 per share; collected in cash.
Net income for the year was $44,000; cash dividends declared and paid at year-end were $11,000.
Required:
Prepare the stockholders' equity section of the balance sheet at December 31.

Answer 1

Answer and Explanation:

The preparation of the stockholders' equity section of the balance sheet at December 31 is presented below:

Contributed Capital:

Common Stock [14000 shares × $10 par] $14,000

Preferred Stock [12000 shares × $10 par] $120,000

Paid in Capital in excess of par - Preferred Stock ((12,000 × $24) - $120,000) $168,00 0

Paid in Capital in excess of par - Common Stock ($196,000 - $14,000) $182,000

Total Contributed Capital $484,000

Retained Earnings ($44,000 - $11,000) $33,000

Total Stockholder's Equity $517,000