Question

On December 31, 2016, Pharoah Company had 1,340,000 shares of $7 par common stock issued and outstanding. At December 31, 2016, stockholders’ equity had the amounts listed here.

Common Stock		$9,380,000
Additional Paid-in Capital		1,745,000
Retained Earnings		1,105,000

Transactions during 2017 and other information related to stockholders’ equity accounts were as follows.

1.		On January 10, 2017, issued at $114 per share 124,000 shares of $104 par value, 9% cumulative preferred stock.
2.		On February 8, 2017, reacquired 17,900 shares of its common stock for $10 per share.
3.		On May 9, 2017, declared the yearly cash dividend on preferred stock, payable June 10, 2017, to stockholders of record on May 31, 2017.
4.		On June 8, 2017, declared a cash dividend of $1.65 per share on the common stock outstanding, payable on July 10, 2017, to stockholders of record on July 1, 2017.
5.		Net income for the year was $3,516,000.

Prepare the stockholders’ equity section of Pharoah balance sheet at December 31, 2017.

Answer 1

PHAROAH COMPANY
Partial Balance Sheet
December 31, 2017
Shareholder's equity
Paid - in Capital
Capital stock:
Preferred Stock                                                                         [124,000 shares x $104]	$12,896,000
Common stock	$9,380,000
Total capital stock		$22,276,000
Additional paid-in capital:
Paid-in capital in excess of par value - Preferred stock         [124,000 shares x ($114 - $104)]	$1,240,000
Paid-in capital in excess of par value - Common stock	$1,745,000
Total Additional paid-in capital		$2,985,000
Total Paid-In Capital     [Total capital stock + Total additional paid-in capital]		$25,261,000
Retained Earnings                                   [Refer working note 1]		$1,278,895
Total Paid-In Capital and Retained Earnings		$26,539,895
Less: Treasury stock                              [17,900 shares x $10]		$179,000
Total Stockholders' Equity		$26,360,895

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.

Working note 1 - Calculation of ending retained earnings balance:
Beginning retained earnings	$1,105,000
Add: Net income	$3,516,000
Less: Dividends          [Refer working note 2]	$3,342,105
Ending retained eanrings balance:	$1,278,895

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Working note 2 - Calculation of total dividends declared:
Number of common shares issued	1,340,000
Less: Number of common shares reacquired	17,900
Number of common shares outstanding                                                                                                        (a)	1,322,100
Cash divided per common share outstanding                                                                                                (b)	$1.65
Total cash dividend declared to common stockholders                                                                                (c = a x b)	$2,181,465
Total cash dividend declared to preferred stockholders   [Par value x 9% = 124,000 x $104 x 9%]           (d)	1,160,640
Total cash dividend declared                                                                                                                       (c + d)	3,342,105