Question

When Resisto Systems, Inc., was formed, the company was authorized to issue 5,000 shares of $100 par value, 8% cumulative preferred stock, and 100,000 shares of $2 stated value common stock. Half of the preferred stock was issued at a price of $103 per share, and 59,000 shares of the common stock were sold for $22 per share. At the end of the current year, Resisto has retained earnings of $382,000.
1. Prepare the stockholder's equity section of the company's balance at the end of the current year.
2. Assume Resisto System’s common stock is trading at $24 per share and its preferred stock is trading at $107 per share at the end of the current year. Would the stockholders’ equity section prepared in part a be affected by this additional information?

Answer 1

Answer:

1. Attached is the Stockholder's equity section of the company's balance at the end of the current year.

Preferred stock = 2,500 (half of 5,000) were issued at par value of $100 each = 2,500 * 100 = $250,000

Additional Paid in capital for Preferred stock = (103 - 100) * 2,500 = $7,500

Common stock = 59,000 issued at stated value of $2 = 59,000 *2 = $118,000

Additional Paid in capital for Common stock = (22 - 2) * 59,000 = $1,180,000‬

2. The Stockholder's equity section is prepared with the book values of the relevant entries. As such, it WILL NOT be affected by changes in market value.