Question

Sheffield Company has two classes of capital stock outstanding: 7%, $100 par preferred and $2 par common. At December 31, 2017, the following accounts were included in stockholders’ equity.

Preferred Stock, 50,000 shares$ 5,000,000

Common stock, 1,200,000 shares2,400,000

Paid-in Capital in Excess of Par – Preferred Stock300,000

Paid-in Capital in Excess of Par – Common Stock28,800,000

Retained Earnings12,800,000

The following transactions affected stockholders’ equity during 2018.

Jan. 1-500 shares of preferred stock issued at $ 108 per share.

Mar. 21-110,000 shares of common stock issued at $ 40 per share.

June 1-2-for-1 common stock split (par value reduced to $1).

July 15-77,000 shares of common treasury stock purchased at $ 32 per share. Sheffield uses the cost method.

Sept. 4-9,000 shares of treasury stock reissued at $ 38 per share.

Dec. 31-The preferred dividend is declared, and a common dividend of 68¢ per share is declared.

Dec. 31-Net income is $ 4,587,000.

Prepare the stockholders’ equity section for Hatch Company at December 31, 2018.

SHEFFIELD COMPANY
Stockholders’ Equity
December 31, 2018

Answer 1

Solution:

Sheffield Company
Partial Balance Sheet
As at December 31, 2018
Particulars		Amount
Stockholders Equity:
Capital Stock:
Preferred Stock [$5,000,000+ (500*$100)]	$50,50,000.00
Common Stock [$2,400,000+ (110,000*$2)]	$26,20,000.00
Total Capital stock		$76,70,000.00
Additional paid in Capital:
Paid-in capital in excess of par- Preferred Stock [$300,000+(500*$8)]	$3,04,000.00
Paid-in capital in excess of Stated value- common stock [28,800,000+(110,000*$38)]	$3,29,80,000.00
Paid-in capital from treasury stock [9000*($38 -$32)]	$54,000.00
		$3,33,38,000.00
Total Paid in capital before retained earnings		$4,10,08,000.00
Add: Retained earnings (Note)		$1,52,98,140.00
Total Paid in Capital and Retained Earnings		$5,63,06,140.00
Less: Treasury Stock [(77000-9000)*$32]		$21,76,000.00
Total Stockholder's Equity		$5,41,30,140.00

Note:

Number of Common shares for dividend = (1,200,000+ 110,000)*2 - (77000-9000) = 1,310,000*2 - 68,000

= 2,620,000 - 68000 = 2,552,000

Retained Earnings = Beginning balance + Net Income - Preferred Dividend - Common stock dividend

= $12,800,000 + $4,587,000 - ($5,050,000*7%) - (2,552,000*0.68)

= $12,800,000 + $4,587,000- $353,500 - $1,735,360

= $15,298,140