Question

Tandy Company was issued a charter by the state of Indiana on January 15 of this year. The charter authorized the following: Common stock, $5 par value, 116,000 shares authorized Preferred stock, 15 percent, par value $15 per share, 5,200 shares authorized During the year, the following transactions took place in the order presented: Sold and issued 20,600 shares of common stock at $30 cash per share. Sold and issued 2,000 shares of preferred stock at $34 cash per share. At the end of the year, the accounts showed net income of $41,200. No dividends were declared.

Required: 1. Prepare the stockholders' equity section of the balance sheet at the end of the year.

Answer 1

Answer:

Equity section of the balance sheet at the end of the year

Authorized Share Capital

116,000 Common stock, $5 par value.                                     580,000

5,200 Preferred stock, 15 percent, par value $15 per share,    78,000

                                                                                                    658,000

Issued Share Capital

Common stock

20,600 Common stock, $5 par value                                       103,000

Share Premium (20,600×$25)                                                   515,000

Total                                                                                             618,000

Preferred stock

2,000  Preferred stock, 15 percent, par value $15 per share   30,000

Share Premium (2,000×$19)                                                        38,000

Total                                                                                               68,000

Retained Earnings

Profit for the year                                                                          41,200

Total Equity                                                                                 727,200

Explanation:

Price issued above the par value of a share is called share premium and is included in equity for each class of stock.

Profit for the year is also included in Equity as Part of the Retained Earnings.