Question

Critical Thinking Problem 20.1 Understanding Stockholders' Equity Just after its formation on September 1, 2019, the ledger accounts of the Ducks, Inc., contained the following balances: 10 points References Accrued Expenses Payable Accounts Payable Accounts Receivable Allowance for Doubtful Accounts Building Cash Common Stock (520 par) Common Stock Subscribed Furniture and Fixtures Merchandise Inventory Notes Payable Short Term Paid-in Capital in Excess of Par Value-Common Paid-in Capital in Excess of Par Value-Preferred Preferred Stock (10%, $50 par) Preferred Stock Subscribed (10%, $50 par) Subscriptions Receivable-Common Stock Subscriptions Receivable-Preferred Stock $ 4,000 7,000 53,000 4,000 300,000 32,000 400,000 40,000 55,000 79,000 5,000 44,000 5, eee 50,000 25,000 40,000 25,000 The corporation is authorized to issue 100,000 shares of $20 par-value common stock and 20,000 shares of 10 percent. $50 par-value preferred stock (noncumulative and nonparticipating). Required: 1. Answer the following questions: o. How many shares of common stock are outstanding? b. How many shares of common stock are subscribed? c. How many shares of preferred stock are outstanding? d. How many shares of preferred stock are subscribed?

Answer 1

1-a)
Common shares outstanding ($400,000/$20 par value)	20,000 shares
1-b)
Common shares subscribed ($40,000/$20 par value)	2,000 shares
1-c)
Shares of Preferred Stock outstanding ($50,000/$50 par value)	1,000 shares
1-d)
Shares of Preferred Stock subscribed ($25,000/$50 par value)	500 shares
1-e)
Common stock has been subscribed at an average price	$20 per share
1-f)
When dividends are not declared, the Preferred Stockholders do not have any rights because the preferred stock issued is non-cumulative means arrears of dividends from previous years do not cumulate or paid in the years when company has sufficient profits and these preferred stock is also non-participating means the preference shareholders do not have any rights to participate in the company's profits.
1-g)
Subscriptions receivable - common stock	$40,000
Add: Paid-in capital in excess of par value - common stock	$44,000
Total paid in capital of common stock (a)	$84,000
Number of common shares subscribed (b)	1,000 shares
Subscriptions price per share (a/b)	$84
Classified Balance Sheet
Assets
Current Assets:
Cash	$32,000
Accounts Receivable	$53,000
Less: Allowance for doubtful accounts	($4,000)
Subscriptions Receivable - Common Stock	$40,000
Subscriptions Receivable - Preferred Stock	$25,000
Merchandise Inventory	$79,000
Total Current Assets		$225,000
Fixed Assets:
Buildings	$300,000
Furnitures and Fixtures	$55,000
Total Fixed Assets		$355,000
Total Assets		$580,000
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts Payable	$7,000
Accrued Expenses Payable	$4,000
Notes Payable - Short-term	$5,000
Total Current Liabilities		$16,000
Total Liabilities		$16,000
Shareholders' Equity
Preferred Stock	$50,000
Common Stock	$400,000
Paid-in Capital in excess of Par value - preferred stock	$5,000
Paid-in Capital in excess of Par value - commmon stock	$44,000
Preferred Stock Subscribed	$25,000
Common Stock Subscribed	$40,000
Total Shareholders' Equity		$564,000
Total Liabilities and Stockholders' Equity		$580,000
Current Ratio:
Total Current Assets (a)	$225,000
Total Current Liabilities (b)	$16,000
Current Ratio (a/b)	14.06