Question

The stockholders' equity section of Karp Company at January 1, 2018 follows: Preferred Stock, 6%, $50 par, 12,000 shares Common Stock, $5 par, 160,000 shares Paid in Capital in excess of Par-Preferred Paid in Capitalin excess of Par Common Retained Earnings $600,000 $800,000 $200,000 $300,000 $800,000 During 2018, the company had the following transactions and events: 15-Jun Issued 10,000 shares of preferred stock at $70. 1-Jul Declared $70,000 of cash dividends to shareholders. 1-Sep Paid the cash dividend declared on July 1 0 15 Sep Announced a 2 for 1 common stock split when the market price was $38 1 Oct Purchased 10,000 shares of common for the treasury at $20 per share 1-Dec Declared a 10% stock dividend on the common stock when the market price was $18 per share. 31-Dec Closed the net income for 2018 of $550,000 orte . w

Answer 1

Solution:

Stockholders' Equity Section of the Balance Sheet December 31, 2018 Preferred stock, 6%, $50 par, 22,000 shares issued and outstanding Cmmon stock, $2.5 par, 351,000 shares issued, 341,000 shares outstanding Preferred Stock paid in Capital in excess of par Common stock Paid-in Capital excess of par Total paid in Capital Retained Earnings Less: Treasury Stock, 10,000 common shares @20 per shares Total Stockholders' Equity 1,100,000 877,500 400,000 300,000 2,677,500 722,000 (200,000) $ 3,599,500

Workings:

Preferred stock shares issued & out. = 12,000 + 10,000 = 22,000

Number of shares of common stock issued = 160,000*2/1 + (320,000-10,000)*10% = 351,000 shares

Number of shares of common stock outstanding = 351,000 - 10,000 (treasury stock) = 341,000 shares

Preferred stock paid-in capital in excess of par = $200,000 + 10,000*($70-$50) = $400,000

Retained earnings = $800,000 + 550,000 (net income) - 70,000 - 10,000*$20 = $722,000