Question

When Resisto Systems, Inc., was formed, the company was authorized to issue 5,000 shares of $100 par value, 8 percent cumulative preferred stock, and 100,000 shares of $2 stated value common stock. Half of the preferred stock was issued at a price of $103 per share, and 70,000 shares of the uc common stock were sold for $13 per share. At the end of the current year, Resisto has retained earnings of $475,000. a. Prepare the stockholders' equity section of the company's balance sheet at the end of the cur- rent year. b. Assume Resisto Systems's common stock is trading at $24 per share and its preferred stock is trading at $107 per share at the end of the current year. Would the stockholders' equity section prepared in part a be affected by this additional information? A portion of the stockholders' equity section from the balance sheet of Walland Corporation appears as follows.

Can someone show me how this should be prepared please!???

Answer 1

Answer: Compony (Resisto System Inc.) is authorised to issue. • Common Stock = 1,00,000 shores @ $2 each • 8%. Preferred Stock 5000 shores @ $100 each Flowever, Issue Capital is &r preferred stock & Half of the Stock at price of $103. ie 2,500 × 103 Total Proceeds = 257500 However, por value is $100, therefore, the premium (extra) clorged $3 per preferred stock will be cotegorised as Security Premium ". be 8% Cummulakue Preferred Stocka 2500x100 =$ 250000 Security Premium - 2500x 3 - $ 7500 Common Stock: 70,000 ghores are sold for $13 flowever, the por values of Common Stuck is $2, therefore the Excess Amount lie. 13-2) shall be the sourity Premium Amount in tue Balonce sheet

• Robined farning are the profits ploughed back by the Company ie, not distributed as dividends to the Common Stockholders. This amount shall also be reflected in the Equity Section of the Balonce swet under the Head " Reserve and surplus". - (a.) Extract of Balonce sheet & Equity section) as on year End Porticulars | Amount ($) Equity and Liabilities - Common Stock [70,000 x 2] 1,40,000 - 8% Commulative Preferred stock [2500x100 250,000 - Resore and Surplus [ Note: 1] 18,52,500 Note: I :Reserve and surplus Stoltes Particelors Amount • Sewrity Premium on issue of Common stock [70,000 x 11] 7,70,000 Security Premium on issue o 8%. preferred Stock [2S00x3) 7500 1475,000 12.52.500 Retained forming Total (6) The clonges in prices of Common Stock and preferred stock of the Compony occurring in the financial market will have no! impact on the Balance sheet (spuity section) of the Résisto System Inc. Flence , Stöck holder's equity Sechon prepored in port cas will NOT be affected by such changes in the fironcial market.