Question

Stockholders' equity of Empowerment Inc. as of December 31, 2018, is as follows: Common stock, par value $2; authorized 20,000 shares; issued and outstanding 10,000 shares $ 20,000 Paid-in capital in excess of par 30,000 Retained earnings 85,000 $135,000 On May 1, 2018, the BOD declared a 15% stock dividend, and accordingly 1,500 additional shares were issued. On May 1, 2018, the fair value of the stock was $6 per share. For the 4 months ended April 30, 2018, Empowerment reported a $15,000 net loss. What amount should Empowerment report as retained earnings as of May 1, 2018

Answer 1

Empowerment Inc.

The amount that Empowerment Inc should report as Retained Earnings as of May 1, 2018 is $67,000.

Step-by-step explanation:

a) Statement of Retained Earnings:

Retained earnings, January 1 $85,000

Net loss (15,000)

Stock dividend (3,000)

Retained earnings, May 1, 2018 $67,000

b) Empowerment Inc. paid a stock dividend of 1,500; thus this additional shares will be valued at $3,000 (1,500 * $2) since the par value is $2. This will increase the Common stock shares outstanding to 11,500 shares to a value of $23,000. The additional $3,000 represents the value of the stock dividend, which reduces the balance of the Retained Earnings.

In addition, Empowerment Inc. incurred a net loss of $15,000. This amount reduces the Retained Earnings.