North Wind Aviation received its charter during January authorizing the followin

Question

North Wind Aviation received its charter during January authorizing the following capital stock: Preferred stock: 8 percent, par $10, authorized 20,000 shares Common stock: par $1, authorized 50,000 shares. The following transactions occurred during the first year of operations in the order given: a. Issued a total of 36,000 shares of the common stock for $19 per share. b. Issued 12,000 shares of the preferred stock at $20 per share. c. Issued 2,600 shares of the common stock at $24 per share and 1,200 shares of the preferred stock at $20. d. Net income for the first year was S44,000. Required: Prepare the stockholders' equity section of the balance sheet at December 31 NORTH WIND AVIATION Balance Sheet (Partial) At December 31 Stockholders' Equity Contributed Capital: Common Stock $ 36,000 Additional Paid-in Capital, Common Stock Additional Paid-in Capital, Preferred Stock Total Contributed Capital 36,000 Total Stockholders' Equity S 36,000

Explanation / Answer

Contributed capital is the amount contributed by shareholders to the company to purchase company's shares. It includes par value of shares purchased and the additional paid in capital paid on purchase of shares.

Total stockholder's equity includes contributed capital as well the net income.

Common stock:

Par value of total common stock issued is equal to total number of common stock issued * par value per share.

Total number of common stock issued is 36000+2600 = 38,600

Par value per share is 1.

Par value of total common stock issued = 38,600*1 = 38,600.

Additional paid in capital, common stock:

in first issue in a. each share is issued at 19 of which 1 is towards par value and the balance 18 is towards additional paid in capital. total amount of additional paid in capital in issue a. is 36000*18 = 648,000

in issue number c. each share of common stock is issued at 24 of which 1 is towards par value and the balance 23 is towards additional paid in capital. Total additional paid in capital common stock in issue number c. is 2,600*23 = 59,800

Total amount of additional paid in capital, common stock = 648,000+59,800= 707,800

preferred stock:

Total number of preference shares issued is 12,000+1,200 = 13,200,

Issue price in both issues in a and c is 20. Since par value of each share is 10, additional paid in capital is the balance 10.

Preferred stock = 13,200*10= 132,000

Additional paid in capital preferred stock = 13,200*10= 132,000

Below is the stockholder's equity section:

*Hope the above explanation helps, please comment if further explanation is required. Your rating is appreciated*

Stockholder's equity Common stock           38,600 Additional paid in capital, common stock        7,07,800 Preferred stock        1,20,000 Additional paid in capital, preferred stock        1,20,000 Total contributed capital        9,86,400 Net income/ retained earnings           44,000 Total shareholder's equity      10,30,400

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