When Resisto Systems, Inc., was formed, the company was authorized to issue 5,00

Question

When Resisto Systems, Inc., was formed, the company was authorized to issue 5,000 shares of $100 par value, 8 percent cumulative preferred stock, and 100,000 shares of $2 stated value common stock.

    Half of the preferred stock was issued at a price of $103 per share, and 70,000 shares of the common stock were sold for $13 per share. At the end of the current year, Resisto has retained earnings of $382,000.

When Resisto Systems, Inc., was formed, the company was authorized to issue 5,000 shares of $100 par value, 8 percent cumulative preferred stock, and 100,000 shares of $2 stated value common stock.

    Half of the preferred stock was issued at a price of $103 per share, and 70,000 shares of the common stock were sold for $13 per share. At the end of the current year, Resisto has retained earnings of $382,000.

Explanation / Answer

Calculation Mistake - Correct answer

70,000 common shares at $2 par = $140,000, sold for $13 = $910,000, difference of $770,000

2,500 preferred shares at $100 par value = $250,000, sold for $103 = $257,500, difference of $7,500

So:

Common Stock = $140,000
Preferred Stock = $250,000

Additional paid in capital - common = $770,000
Additional paid in capital - preferred = $7,500

Total paid in capital = $1,167,500

Retained earnings = $382,000

Stockholder's equity = $1,549,500

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