Question

National League Gear has two classes of stock authorized: 6%, $20 par preferred, and $5 par value common. The following transactions affect stockholders’ equity during 2021, National League’s first year of operations:

February	2		Issue 1.4 million shares of common stock for $34 per share.
February	4		Issue 590,000 shares of preferred stock for $22 per share.
June	15		Purchase 140,000 shares of its own common stock for $29 per share.
August	15		Resell 105,000 shares of treasury stock for $44 per share.
November	1		Declare a cash dividend on its common stock of $1.40 per share and a $708,000 (6% of par value) cash dividend on its preferred stock payable to all stockholders of record on November 15. (Hint: Dividends are not paid on treasury stock.)
November	30		Pay the dividends declared on November 1.

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2021. Net income for the year was $4,890,000.

Answer 1

National League Gear
Balance sheet
(Stockholder's Equity Section)
At December 31, 2021
Stockholder's Equity:
Preferred stock	$             70,00,000
Common stock	$          1,18,00,000
Additional Paid - in - Capital	$          4,33,55,000
Total Paid - in Capital	$          6,21,55,000
Retained earnings	$             22,71,000
Treasury Stock	$            -10,15,000
Total Stockholder's Equity	$          6,34,11,000
Workings:
Paid in capital in excess of par value, Common stock (1400000 X $29)	$          4,06,00,000
Paid in capital in excess of par value, Preferred stock (590000 X $2)	$             11,80,000
Paid in capital in from sale of treasury stock [105000 X ($44-$29)]	$             15,75,000
Additional Paid - in - Capital	$          4,33,55,000
Dividend declared [$708000 + ($1.40 X 1365000)]	$             26,19,000
Treasury Stock [(140000 - 105000)*29]	$             10,15,000
	Beginning balance	Addition	Deduction	Ending balance
Common stock	$                             -	$       70,00,000		$         70,00,000
Preferred stock	$                             -	$    1,18,00,000		$     1,18,00,000
Additional Paid - in - Capital	$                             -	$    4,33,55,000		$     4,33,55,000
Retained earnings	$                             -	$       48,90,000	$       26,19,000	$         22,71,000