Preparing the Stockholders’ Equity Section: A Challenging Case
The Adams family decided early in 2015 to incorporate their family-owned farm under the name Adams Corporation. The corporation was authorized to issue 100,000 shares of a single class of $1 par value capital stock. Presented below is the information necessary to prepare the stockholders’ equity section of the company’s balance sheet at the end of 2015 and at the end of 2016.
2015. In January the corporation issued to members of the Adams family 20,000 shares of capital stock in exchange for cash and other assets used in the operation of the farm. The fair market value of these assets indicated an issue price of $25 per share. In December, George Adams died and the corporation purchased 4,000 shares of its own capital stock from his estate at $30 per share. Because of the large cash outlay to acquire this treasury stock, the directors decided not to declare cash dividends in 2015 and instead declared a 10 percent stock dividend to be distributed in January 2016. The stock price at the declaration date was $31 per share. (The treasury shares do not participate in the stock dividend.) Net income for 2015 was $850,000.
2016. In January the corporation distributed the stock dividend declared in 2015, and in February, the 4,000 treasury shares were sold to Joan Adams at $35 per share. In June, the capital stock was split 2-for-1. (Approval was obtained to increase the authorized number of shares to 200,000.) On December 11, the directors declared a cash dividend of $1 per share, payable in January 2017. Net income for 2016 was $810,000.
Instructions
Using the format illustrated in Exhibit 12–6 , prepare the stockholders’ equity section of the balance sheet at:
a. December 31, 2015.
b. December 31, 2016.
Show any necessary computations in supporting schedules.
EXHIBIT 12–6 Stockholders’ Equity Section of Balance Sheet
Stockholders’ Equity | ||
Capital stock: |
|
|
5% convertible preferred, $100 par value, 3,000 |
|
|
shares authorized and issued |
| $ 300,000 |
Common stock, $10 par value, 100,000 shares authorized, issued 30,800 (of which 1,000 are held in treasury) |
| 308,000 |
Additional paid-in capital: |
|
|
From issuance of common stock | $580,000 |
|
From stock dividends | 112,000 | 692,000 |
Total paid-in capital |
| $1,300,000 |
Retained earnings |
| 780,400 |
Subtotal |
| $2,080,400 |
Less: Treasury stock (1,000 shares at $47 per share) |
| 47,000 |
Total stockholders’ equity |
| $2,033,400 |
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