Determining the Effects of the Issuance of Common and Preferred Stock
Tandy, Incorporated. was issued a charter on January 15, 2011 that authorized the following capital stock:
Common stock, no-par, 103,000 shares
Preferred stock, 9 percent, par value $8 per share, 4,000 shares
The board of directors established a stated value on the no-par common stock of $10 per share. During 2011, the following selected transactions were completed in the order given:
a.Sold and issued 20,000 shares of the no-par common stock at $16 cash per share.
b.Sold and issued 3,000 shares of preferred stock at $20 cash per share.
c. At the end of 2011 the accounts showed net income of $40,000.
Required:
1. Prepare the stockholders’ equity section of the balance sheet at December 31, 2011.
2. Assume that you are a common stockholder. If Tandy needed additional capital, would you prefer to have it issue additional common stock or additional preferred stock? Explain.
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