Question

United Resources Company obtained a charter from the state in January of this year. The charter authorized 201,000 shares of common stock with a par value of $2. During the year, the company earned $478,000 Also during the year, the following selected transactions occurred in the order given:

a. Sold 97,000 shares of the common stock in an initial public offering at $19 cash per share.

b. Repurchased 25,000 shares of the previously issued shares at $22 cash per share.

c. Resold 5,000 of the shares of the treasury stock at $25 cash per share.

Required:

Prepare the stockholders' equity section of the balance sheet at the end of the year.

Answer 1

Solution:
	United Resources Company
	Balance Sheet (Partial)
	At December 31, This year
	Stockholders' equity:
	Contributed capital:
	Common stock		194,000
	Additional paid-in capital		1,664,000
	Total contributed capital		1,858,000
	Retained earnings		478,000
	Total Contributed capital and retained earnings		2,336,000
	Treasury stock		($440,000)
	Total stockholders' equity			$1,896,000
Working Notes:
Transaction	General Journal	Debit	Credit
a.	Cash	1,843,000
	[no. of shares issued x issue price]
	[97,000 x $19]
	Common Stock		194,000
	[no. of shares issued x par value]
	[97,000 x $2]
	Additional Paid-In Capital		1,649,000
	[no. of shares issued x (Issue price - par value)]
	[97,000 x ($19-$2)]
b.	Treasury Stock	550,000
	[no. of shares repurchase x repurchase price]
	[25,000 x $22]
	Cash		550,000
c.	Cash	125,000
	[no. of shares resold xselling price]
	[5,000 x $25]
	Treasury Stock		110,000
	[no. of shares resold x repurchase cost price]
	[5,000 x $22]
	Additional Paid-In Capital		15,000
	[no. of shares resold x (Selling price - repurchase cost price)]
	[5,000 x ($25-$22)]
	United Resources Company
	Balance Sheet (Partial)
	At December 31, This year
	Stockholders' equity:
	Contributed capital:
I	Common stock		194,000
	[From a. above]
II	Additional paid-in capital		1,664,000
	[From a. & c. above]
	[1,649,000 + 15,000]
III=I+II	Total contributed capital		1,858,000
IV	Retained earnings		478,000
	[earnings during the period]
V=III+IV	Total Contributed capital and retained earnings		2,336,000
	Treasury stock
	[550,000-110,000]		($440,000)
	Total stockholders' equity			1,896,000
Please feel free to ask if anything about above solution in comment section of the question.