The following transactions occurred at Horton Inc. during its first year of oper
ID: 2351751 • Letter: T
Question
The following transactions occurred at Horton Inc. during its first year of operation:a. Issued 100,000 shares of common stock at $5 each, 1,000,000 shares are authorized at $1 per value.
b. Issued 10,000 shares of common stock for a building and land. The building was appraised for $20,000, but the value of the land is undetermined. The stock is selling for $10 on the open market.
c. Purchased 1,000 shares of its own common stock on the open market at $16 per share.
d. Declared a dividend of $0.10 per share on outstanding common stock. The dividend is to be paid after the end of the first year of operations. Market value of the stock is $26.
e. Declared a 2 for 1 stock split. The market value of the stock was $37 before the stock split.
f. Reported $180,000 of income for the year.
Required.
1. Indicate each transaction's effect on the assets, liabilities, and stockholders' equity of Horton Inc.
2. Prepare a Stockholders' Equity section of the balance sheet.
3. Write a paragraph that explains the number of shares of stock issued and outstanding at the end of the year.
Explanation / Answer
1. Indicate each transaction's effect on the assets, liabilities, and stockholders' equity of Horton Inc.
a. Issued 100,000 shares of common stock at $5 each, 1,000,000 shares are authorized at $1 per value.
Increase assets by 500,000.
Increase stockholder’s equity 500,000
b. Issued 10,000 shares of common stock for a building and land. The building was appraised for $20,000, but the value of the land is undetermined. The stock is selling for $10 on the open market.
Increase assets 100,000
Increase stockholders equity 100,000
c. Purchased 1,000 shares of its own common stock on the open market at $16 per share.
Increase assets 16,000
Increase stockholders liability 16,000
d. Declared a dividend of $0.10 per share on outstanding common stock. The dividend is to be paid after the end of the first year of operations. Market value of the stock is $26.
Increase liabilities 11,100
Decrease stockholders liability 11,100
e. Declared a 2 for 1 stock split. The market value of the stock was $37 before the stock split.
Does not affect any.
f. Reported $180,000 of income for the year.
Increase assets 180,000
Increase stockholders equity 180,000
2. Prepare a Stockholders' Equity section of the balance sheet.
Stockholders Equity
Common stock, $0.50 par value 1,000,000 shares authorized, 222,000 shares issued and outstanding
111,000
paid in capital in excess of par
505,000
retained earnings
168,900
total stockholders equity
784,900
3. Write a paragraph that explains the number of shares of stock issued and outstanding at the end of the year.
Number shares issued and outstanding is 222,000. First they issued 100,000, then they issued 10,000, and finally they issued 1,000. This comes to 111,000 shares. Then they declared a 2 for 1 split. This increased the number of shares to 222,000, since 111,000*2 = 222,000. There were no further changes to the number of shares.
Common stock, $0.50 par value 1,000,000 shares authorized, 222,000 shares issued and outstanding
111,000
paid in capital in excess of par
505,000
retained earnings
168,900
total stockholders equity
784,900
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