Shown below is the stockholders’ equity section of Powell’s balance sheet at Dec
ID: 2427403 • Letter: S
Question
Shown below is the stockholders’ equity section of Powell’s balance sheet at December 31, 2010:
Stockholders’ equity:
Common stock, $2 par value, 500,000 shares authorized,
?? shares issued........................................................................ $ 500,000
Additional paidin capital: common stock................................................ 1,750,000
Total paid-in capital........................................................................... $2,250,000
Retained earnings..................................................................................... 2,400,000
Total stockholders’ equity........................................................................ $4,650,000
In 2011, the following events occurred:
Powell issued 2,500 shares of $2 par common stock as payment for legal services. Although Powell’s stock is not traded on any exchange, the agreed-upon value of the legal services is $80,000.
Powell issued 4,500 shares of 6% cumulative preferred stock, $100 par value, for $106 per share.
The board of directors declared a dividend of $1.25 per share on the common stock.
Powell’s net income for 2011 was $675,000.
Instructions
Complete in good form the stockholders’ equity section of a balance sheet prepared for Powell at December 31, 2011.
Stockholders’ equity:
6% cumulative preferred stock, $100 par value,
10,000 shares authorized, 4,500 shares issued
$
Total paidin capital
$
Total stockholders’ equity
Use this space to calculate ending Retained Earnings, Dec 31 (hint: remember the Retained Earnings Statement format or think about the T-account approach
Beginning retained earnings
$
Add:
Less:
Retained earnings, Dec. 31, 2011
$
Stockholders’ equity:
6% cumulative preferred stock, $100 par value,
10,000 shares authorized, 4,500 shares issued
$
Total paidin capital
$
Total stockholders’ equity
Explanation / Answer
Stockholders’ equity: 6% cumulative preferred stock, $100 par value 10,000 shares authorized, 4,500 shares issued 450,000 Ordinary share, $2 par value 500,000 shares authorized, 2,52,500 shares issued 505,000 Shares Premium: Preference ($6 X 4500 Pref Shares) 27,000 Shares Premium: Ordinary Shares ($1,750,000 + 75000) 1,825,000 Total Paid Up Capital 2,807,000 Retained Earnings 2,732,375 Total Sharholder's Equity 5,539,375 Retained Earning Statement Beginning Retained Earnings 2,400,000 Add: Net Income 675,000 Less: Dividend Declared Preference - ($450000 X 6%) (27,000) Ordinary ($1.25 X 252500 Shares) (315,625) Retained Earnings at the End 2,732,375
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