Question

A company has two classes of stock authorized: 9%, $10 par preferred, and $1 par value common. The following transactions affect stockholders' equity during Year 1, its first year of operations:______.

January 2 Issues 100,000 shares of common stock for $29 per share.
February 6 Issues 2,400 shares of 9% preferred stock for $11 per share.
September 10 Purchases 11,000 shares of its own common stock for $34 per share.
December 15 Resells 5,500 shares of treasury stock at $39 per share.
In its first year of operations, the company has net income of $154,000 and pays dividends at the end of the year of $94,500 ($1 per share) on all common shares outstanding and $2,160 on all preferred shares outstanding. Required:
Prepare the stockholders' equity section of the balance sheet for the company as of December 31, Year 1.

Answer 1

Stockholders' Equity

Preferred 9% Stock, $10 par value

(2,400 stocks authorized) $24,000

Paid-in Capital in Excess of Par $2,400 $26,400

Common Stock

(94,500 stocks outstanding) $100,000

Paid-in Capital in Excess of Par $2,827,500 $2,927,500

Total paid in capital $2,953,900

Retained Earnings $59,500

Treasury Stock (5,500 stocks at cost) ($187,000)

Total Stockholders' Equity $2,826,400

Step-by-step explanation:

Jan. 2 Issued 100,000 shares of common stock for $2,900,000.

Dr Cash 2,900,000

Cr Common stock 100,000

Cr Paid-in capital in excess of par value - common stock 2,800,000

February 6 Issues 2,400 shares of 9% preferred stock for $11 per share.

Dr Cash 26,400

Cr Preferred stock 24,000

Cr Paid-in capital in excess of par value - preferred stock 2,400

September 10 Purchases 11,000 shares of its own common stock for $34 per share.

Dr Treasury stock 374,000

Cr Cash 374,000

December 15 Resells 5,500 shares of treasury stock at $39 per share.

Dr Cash

Cr Treasury stock 187,000

Cr Paid-in capital in excess of par value - common stock 27,500

retained earnings = $154,000 - $94,500 = $59,500

Preferred Stock $24,000

Common Stock $100,000

Paid-in capital in excess of par value - preferred stock $2,400

Paid-in capital in excess of par value - common stock $2,827,500

Retained Earnings $59,500

Treasury Stock $187,000