Question

Quick Fix-It Corporation was organized at the beginning of this year to operate several car repair businesses in a large metropolitan area.

The charter issued by the state authorized the following stock:

Common stock, $10 par value, 98,000 shares authorized

Preferred stock, $50 par value, 8 percent, 59,000 shares authorized

During January and February of this year, the following stock transactions were completed:

Sold 78,000 shares of common stock at $20 cash per share.

Sold 20,000 shares of preferred stock at $80 cash per share.

Bought 4,000 shares of common stock from a current stockholder for $20 cash per share.

Required:

Net income for the year was $210,000; cash dividends declared and paid at year-end were $50,000.

Prepare the stockholders' equity section of the balance sheet at the end of the year. (Amounts to be deducted should be indicated with a minus sign.)

Answer 1

Answer:

Quick fix Balance Sheet as at December,31 $

Equity

Authorised shares

98,000 common stock@$10 980,000

59,000 preferred stock of 8% @$50 per stock $2,950,000

Issued stock.

78,000 common stock. 780,000

20,000 preferred stock 1,000,000

Share premium, common stock 780,000

Share premium preferred stock 600,000

Less share discount on repurchase d share (40,000)

Net income 210,000

Less dividend (50,000)

Total. 3,280,000

Explanation:$

The authorised share capital is showing as stated in the charter. When the issued share is sold above the authorised value it's recorded as share premium to be added to the values of the share issued and when it's sold below the authorised value it's recognized as a discount to be deducted from the issued share value. The repurchase of own share is not added to the share issued but cognizance and recording is giving to premium or discount on repurchase or resell .

The dividend declared and payed is deducted from the net income to arrive at retained earnings.