Question

Exercise 11-13 Preparing stockholders' equity section LO P1, C2, P3, C3

In Draco Corporation's first year of business, the following transactions affected its equity accounts.

- Issued 6,200 shares of $2 par value common stock for $40. It authorized 20,000 shares.

- Issued 1,550 shares of 12 %, $10 par value preferred stock for $45. It authorized 3,000 shares.

- Reacquired 310 shares of common stock for $52 each.

- Retained earnings is impacted by reported net income of $72,000 and cash dividends of $26,000.

Prepare the stockholders' equity section of Draco's balance sheet as of December 31. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

First we will calculate the balance of excess of issue price over par value of common stock,which is a  component of additional paid in capital, in statement of stockholder's equity.

Excess of issue price over par value of common stock = 6200 shares * $38 = $235600

Less: Excess of issue price over par value of treasury stock acquired = 310 * $50 = ($15500)

Balance in excess of issue price over par value of common stock = $220100

Statement of stockholder's equity is given below:

Description	Amount
Capital stock (capital equal to par value):
Preferred stock, $10 par value, authorized 3000 shares, issued and outstanding 1550 shares (1550 * $10)	15500
Common stock, $2 par value, authorized 20000 shares, issued and outstanding 6200 shares of which 310 are held in treasury (6200 * $2)	12400
Total capital stock	27900
Additional paid in capital (capital in excess of par value)
Excess of issue price over par value of common stock	220100
Excess of issue price over par value of preferred stock	54250
Total additional paid in capital	274350
Retained earnings:
Net income	72000
Less: Cash dividends	(26000)
Less: Cost of shares in treasury (310 * $2)	($620)
Total retained earnings	45380
Total stockholder's equity	347630