Question

Statement of Shareholders' Equity

On January 1, 2016 the Knox Company showed the following alphabetical list of Shareholders' Equity balances:

Additional paid-in capital on common stock	$130,000
Additional paid-in capital on preferred stock	6,000
Common stock, $10 par	100,000
Preferred stock, $100 par	50,000
Retained earnings	224,000

During 2016, the following events occurred and were properly recorded by the company:

Knox purchased an investment in available-for-sale securities. At year-end, the fair value of the securities had increased by $9,000.

Knox issued 2,000 shares of common stock for $25 per share.

Knox issued 110 shares of preferred stock for $116 per share.

Knox reacquired 400 shares of its common stock as treasury stock at a cost of $26 per share. (Hint: Record the reacquisition cost in a Treasury Stock account.)

Knox earned net income of $57,000.

Knox paid a $7 per share dividend on the preferred stock and a $1.25 per share dividend on the common stock outstanding at the end of 2016 (treasury stock is not entitled to dividends).

Required:

Prepare a statement of shareholders' equity for 2016, including retained earnings.

Answer 1

KNOX Company

Statement of Shareholder's A/C as on 31st December 2016

	Preferred Stock$100	Common Stock $10	Additional paid up in preferred stock	Additional paid up in Common stock	Retained Earning	Accumulated other income	Treasury stock	Total
Balance as on 01/01/2016	50,000	1,00,000	6,000	1,30,000	2,24,000	00	00	5,04,000
Unrealized increase in the value of available for sell securities						9000		9000
Common Stock Issued		20,000		30000				50000
Preferred stock issued	11,000		1760					12760
Common stock reacquired		(4000)		(6400)			10600	00
Net Income					57000			57000
Cash divided on preferred stock					(4270)			(4270)
Cash divided on Common stock					(14500)			(14500)
Balance as on 31/12/2016	61000	116000	7760	153600	262230	9000	10600	613900

Working Notes:-

1. Issue of 2000 common stock at $25 i.e.

Face Value = 2000*10=20000  ( it has been added into the common stock value)

Premium = 2000*15=30000  ( it has been added into additional paid up from common stock)

2. Issue of 110 preferred stock at $116 i.e.

Face Value = 110*100=11000  ( it has been added into the preferred stock value)

Premium = 110*16=1760 ( it has been added into additional paid up from preferred stock)

3. Common stock reacquired:- 400 common stock at $26 i.e.

Face Value = 400*10=4000 ( it has been deducted from the common stock value)

Premium = 400*16= 6400 ( it has been deducted from additional paid up from common stock)

4. Divided of preferred stock

no of existing stock = 500+110=610

Divided = 610*7=4270 ( it has been deducted from net income)

5. Divided of common  stock

no of existing stock = 10000+2000-400=11600

Divided = 11600*1.25=14500 ( it has been deducted from net income)