Question

Midtown, Inc. had the following transactions in​ 2018, its first year of​ operations:

Issued 40,000 shares of common stock. Stock has a par value of $1.00 per share and was issued at $23.00 per share.
Earned net income of $74,000.
Paid no dividends.

At the end of 2018, what is total stockholders' equity?

Answer 1

$994,000

Step-by-step explanation:

The shareholders equity is usually made up of the common stock and the retained earnings which is the accumulated balance of the company's net income/loss net of dividend paid over the years of operations of the entity.

However, an additional component of the shareholder's equity is the share premium which is the excess amount paid for the company's shared over the par value.

Common stock = $1.00 × 40,000

= $40,000

Share premium = ($23 - $1) × 40,000

= $880,000

total shareholder's equity = $40,000 + $880,000 + $74,000

= $994,000

Answer 2

Total stockholders' equity is $994,000

Step-by-step explanation:

The total stockholders' equity is made up of common stock par value plus the paid-in capital in excess of par plus net income for the year:

Midtown Inc,Balance sheet extract for the year ended 31st 2018

Common stock par value($1*40,000) $40,000

Paid-in capital in excess of par($23-$1)*40,000 $880,000

net income(retained earnings) $74,000

Total stockholders' equity $994,000

The net income is included because the net income it adds to the retained earnings for the company as the retained earnings belong to the real owners of the business, the stockholders