Question

Bacon Corporation began business by issuing 180,000 shares of $5 par value common stock for $25 per share. During its first year, the corporation sustained a net loss of $30,000. The year-end balance sheet would show

		Common stock of $900,000.
		Common stock of $4,500,000.
		Total paid-in capital of $4,470,000.
		Total paid-in capital of $930,000.

Answer 1

• It is very clear that this is the first year of operation for the company.
• Common stock issued = 180,000 shares at $ 25 per share = $ 4,500,000

Of this amount:

>180,000 shares x $ 5 par value = $ 900,000 will be credited to ‘Common Stock’, and
>180,000 shares x $ 20 = $ 3,600,000 will be credited to ‘Additional paid in capital.

---Hence, total common stock will be $ 900,000 and total paid up capital will be $ 4,500,000

• Net Loss will lead to a negative balance in Retained Earnings. Retained Earnings will be $ (30,000)
• The total stock holder’s equity will be $ 4,500,000 + $ (30,000) = $ 4,470,000.
• Total Stockholder’s Equity Section of Balance Sheet will look like this:

Stockholder's Equity:
Common Stock [180,000 shares x $ 5 par]	$                      900,000.00
Additional Paid in Capital	$                   3,600,000.00
Total Paid in Capital	$                  4,500,000.00
Retained Earnings	$                      (30,000.00)
Total Stockholder's Equity	$                   4,470,000.00

• Hence, of the options available, Option #1: Common Stock of $ 900,000 matches the data of Stockholder’s Equity given above.

Correct answer = Option #1: Common Stock of $ 900,000