7-2 Sweet Sixteen has two classes of stock authorized: $100 par value preferred

Question

7-2

Sweet Sixteen has two classes of stock authorized: $100 par value preferred and $1 par value common. Sweet Sixteen has the following beginning balances in its stockholders' equity accounts on January 1, 2018: preferred stock, $100,000, common stock, $20,000; paid-in capital, $380,000; and retained earnings, $450,000. Net income for the year ended December 31, 2018, is $65,000. The following transactions affect stockholders' equity during 2018:

March 1 Issue 3,000 additional shares of common stock for $22 per share.
April 1 Issue 5,000 additional shares of preferred stock for $110 per share.
June 1 Declare a cash dividend on common stock of $1 per share and a cash dividend on preferred stock of $5 per share to all stockholders of record on June 15.
June 30 Pay the cash dividends declared on June 1.
August 1 Purchase 2,000 shares of common treasury stock for $18 per share.
October 1 Reissue 1,000 shares of treasury stock purchased on August 1 for $20 per share.

Taking into consideration the beginning balances and all the transactions during 2018, respond to the following for Sweet Sixteen:

Required:

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2018. (Amounts to be deducted should be indicated by a minus sign.)

Explanation / Answer

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2018. (Amounts to be deducted should be indicated by a minus sign.) Sweet Sixteen Statement of Stockholders' Equity For the Year Ended December 31, 2018 Additional Total Preferred Common Paid-in Retained Treasury Stockholders' Stock Stock Capital Earnings Stock Equity Balance, January 1 $100,000 $20,000 $380,000 $450,000 $0 $950,000 Issued common stock (3000 x $1), (3000 x ($22 - $1) $3,000 $63,000 $66,000 Purchase of treasury stock (2000 x $18) -$36,000 -$36,000 Sale of treasury stock (1000 x ($20-$18);(1000 x $18) $2,000 $18,000 $20,000 Issued preferred stock (5000 x $100); (5000 x( $110 -$100)) $500,000 $50,000 $550,000 Cash dividends (23000 x $1) common + (6000 x $5) preferred -$53,000 -$53,000 Net income $9,500 $9,500 Balance, December 31 $600,000 $23,000 $495,000 $406,500 -$18,000 $1,506,500 Sweet Sixteen Balance Sheet Stockholders’ equity For the Year Ended December 31, 2018 Stockholders’ equity: Common Stock $23,000.00 Preferred Stock $600,000.00 Additional paid-in capital $495,000 Total paid-in capital $1,118,000.00 Retained earnings $406,500 Treasury stock, 200 shares -$18,000 ??Total Shareholder's Equity $1,506,500.00

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