Question

Midtown, Inc. had the following transactions in 2018, its first year of operations:• Issued 31,000 shares of common stock. Stock has par value of $1.00 per shareand was issued at $20.00 per share.• Earned net income of $70,000.• Paid no dividends.At the end of 2018, what is total stockholders' equity?Select one:A. $690,000B. $70,000C. $31,000D. $620,000

Answer 1

Answer:

                                                                                        $

Par value of existing  com m on stock (31,000 x $1) 31,000

Share premium (31,000 x  $19)                                   589,000

Net income                                                                   70,000

Total stockholders' equity                                           690,000

The correct answer is A

Explanation:

The total stockholders' equity is the sum of par value of common stock, share premium and net income. Share premium is the excess of issue price over par value ($20 - $1) = $19.