Star corporation issued both common and predered stock during 20X6. The stockhol
ID: 2506397 • Letter: S
Question
Star corporation issued both common and predered stock during 20X6. The stockholders' equity section of the company's balance sheets at the end of 20X6 and 20X5 follow:
20X6 20X5
Preferred stock, $100 par value, 10% $580,000 $500,000
Common stock, $10 par value $2,350,000 $1,750,000
Paid-in capital in excess of par value
Preferred $24,000 -
Common $4,620,000 $3,600,000
Retained earnings $8,470,000 $6,920,000
Total stockholders' equity $16,044,000 $12,770,000
a) compute the number of preferred shares that were issued during 20X6.
b) calculate the average issue price of the common stock sold in 20X6.
c) by what amount did the company's paid-in capital increase during 20X6?
d) did Star's total legal capital increase or decrease during 20X6? by what amount?
Explanation / Answer
a. Calculate the average issue price of the common stock sold in 20X6.
(2,350,000 - 1,750,000) / 10 = 60,000 shares issued
[(2,350,000 - 1,750,000) + (4,620,000 - 3,600,000)] / 60,000 = $27 per share
b. By what amount did the company's paid-in capital increase during 20X6?
500,000 + 1,750,000 +3,600,000 = $5,850,000 paid-in capital 2005
580,000 + 2,350,000 + 24,000 + 4,620,000 = $7,574,000 paid-in capital 2006
7,575,000 - 5,850,000 = $1,724,000 increase
c. Did Star's total legal capital increase or decrease during 20X6? By what amount?
Legal capital is the par value of stock.
500,000 + 1,750,000 = $2,250,000 legal capital 2005
580,000 + 2,350,000 = $2,930,000 legal capital 2006
2,930,000 - 2,250,000 = $680,000 increase
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