Question

Ferris Company reported the following on its balance sheet: total contributed capital of $186,000, treasury stock of $19,500 and total stockholder's equity of $237,500. Ferris had 1,000,000 authorized shares of its $0.01 par value common stock of which 200,000 were outstanding. During the following year, Ferris Company earned net income of $75,000, issued 5,000 shares of $1 par common stock at an average market price of $44 per share, and declared dividends of $20,500. What amount was the total stockholder's equity reported on the balance sheet at the end of that year?

Answer 1

Answer:

The total stockholder's equity reported on the balance sheet at the end of that year was $512,000

Explanation:

According to the given data we have the following:

Beginning Stockholders’ Equity = $237,500

Net Income = $75,000

Dividends declared = $20,500

In order to calculate the  total stockholders' equity at the end of the year we would have to calculate first the Proceed from Issuance of Common Stock as follows:

Proceed from Issuance of Common Stock = Number of shares issued * Market Price per share

Proceed from Issuance of Common Stock = 5,000 * $44

Proceed from Issuance of Common Stock = $220,000

Therefore, to calculate the total stockholders' equity at the end of the year we would have to use the following formula:

Ending Stockholders’ Equity = Beginning Stockholders’ Equity + Proceed from Issuance of Common Stock + Net Income - Dividends declared

Ending Stockholders’ Equity = $237,500 + $220,000 + $75,000 - $20,500

Ending Stockholders’ Equity = $512,000

The total stockholder's equity reported on the balance sheet at the end of that year was $512,000