Question

Diane's Designs has two classes of stock authorized: 8%, $10 par value preferred and $1 par value common. As of January 1, 2021, the following accounts had the following balances: Common Stock $10,000, preferred stock $5,000, retained earnings was $9,600. The following transactions affect stockholders' equity during 2021, its first year of operations: January 1-Dec. 31 Net Income $25,000 January 1 Issue 200,000 shares of common stock for $15 per share. February 6 Issue 1,000 shares of preferred stock for $11 per share. October 10 Purchase 10,000 shares of its own common stock for $18 per share. November 12 Resell 5,000 shares of treasury stock at $20 per share. December 31 Paid dividends of $3,000 What is the balance in common stock, preferred stock, additional paid in capital, treasury stock and retained earnings at the end of 2021

Answer 1

Answer:

Common stock = $210,000

Preferred stock = $15,000

Additional paid in capital = $2,801,000

Treasury stock  =    $120,000

Retained earnings = $31,600

Explanation:

Diane's Designs has two classes of stock authorized: 8%, $10 par value preferred and $1 par value common.

As of January 1, 2021, the following accounts had the following balances: Common Stock $10,000, preferred stock $5,000, retained earnings was $9,600.

The following transactions affect stockholders' equity during 2021, its first year of operations: January 1-Dec. 31 Net Income $25,000

January 1 Issue 200,000 shares of common stock for $15 per share.

JOURNAL ENTRIES

Dr. Bank.......................3,000,000

Cr. Common stock.......................200,000

Cr. Additional Paid-in capital..2,800,000

February 6 Issue 1,000 shares of preferred stock for $11 per share.

JOURNAL ENTRIES

Dr. Bank.......................11,000

Cr. Preferred stock.......................10,000

Cr. Additional Paid-in capital.......1,000

October 10 Purchase 10,000 shares of its own common stock for $18 per share.

JOURNAL ENTRIES

Dr. Treasury Stock.......................180,000

Cr. Bank........................................................180,000

November 12 Resell 5,000 shares of treasury stock at $20 per share.

JOURNAL ENTRIES

Dr. Bank..............60,000

Cr. Treasury Stock.......................60,000

December 31 Paid dividends of $3,000

The closing balances can be computed as beginning balances + changes in the year = closing balances:

Common stock = 10,000 + 200,000 = $210,000

Preferred stock =  5,000 + 10,000 =    $15,000

Additional paid in capital = 2,800,000 + 1,000 = $2,801,000

Treasury stock  = 180,000 - 60,000 = $120,000

Retained earnings 9,600 + 25,000 - 3,000 = $31,600