Question

National League Gear has two classes of stock authorized: 5%, $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 1.5 million shares of common stock for $15 per share.

February 4 Issue 400,000 shares of preferred stock for $24 per share. June 15 Purchase 150,000 shares of its own common stock for $10 per share.

August 15 Resell 112,500 shares of treasury stock for $25 per share.

November 1 Declare a cash dividend on its common stock of $1.50 per share and a $400,000 (5% 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.

General Journal entry

Prepare the stockholders’ equity section of the balance sheet as of December 31, 2021. Net income for the year was $4,700,000.

Stockholders equity
Preferred stock	$8.000,000
Common Stock	7,500,000
Additional paid-in capital	?
Total paid in capital
Treasury stock	?
Retained earnings	?
Total stockholders equity

Answer 1

National League Gear
Stockholders’ equity section of the balance sheet
December 31, 2021
Preferred stock	8,000,000
Common Stock	7,500,000
Additional paid-in capital	18,287,500
Total paid in capital	33,787,500
Retained earnings	2,106,250
Treasury stock	(375,000)
Total stockholders equity	35,518,750

Calculation

Statement of stockholder's equity
	Preferred stock	Common Stock	Additional paid-in capital	Retained earnings	Treasury stock	Total stockholder's equity
February 2
Par value (1500000*5)		7,500,000
Excess of par (1500000*(15-5))			15,000,000
February 4
Par value (400000*20)	8,000,000
Excess of par (400000*(24-20))			1,600,000
June 15
Treasury stock (150000*10)					(1,500,000)
August 15
Cost of sale of treasury stock (112500*10)					1,125,000
Excess of cost (112500*(25-10))			1,687,500
November 1
Common dividends (1462500*1.50)				(2,193,750)
Preferred dividends (400000*20*5%)				(400,000)
December 31
Net income				4,700,000
Total	8,000,000	7,500,000	18,287,500	2,106,250	(375,000)	35,518,750