Effects of Stockholders’ Equity Transactions on Balance Sheet
The following transactions occurred at Hilton Inc. during its first year of operation:
a. Issued 10,000 shares of common stock at $10 each; 100,000 shares are authorized at $1 par value.
b. Issued 10,000 shares of common stock for a patent, which is expected to be effective for the next 15 years. The value of the patent is undeterminable. The stock is selling for $10 on the open market.
c. Purchased 1,000 shares of its own common stock on the open market for $10 per share.
d. Declared a dividend of $0.50 per share of outstanding common stock. The dividend is to be paid after the end of the first year of operations. Market value of the stock is $10.
e. Reported $340,000 of income for the year.
Required
1. Indicate each transaction’s effect on the assets, liabilities, and stockholders’ equity of Hilton Inc.
2. Hilton’s president has asked you to explain the difference between contributed capital and retained earnings. Discuss the terms as they relate to Hilton.
3. Determine the book value per share of the stock at the end of the year.
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