Question

Roberto Corporation was organized on January 1, 2018. The firm was authorized to issue 100,000 shares of $5 par common stock. During 2018, Roberto had the following transactions relating to shareholders' equity: Issued 10,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8). What is total shareholders' equity at the end of 2018?

Answer 1

Answer:

The total shareholders' equity at the end of 2018 is $250,000

Explanation:

The total shareholders' equity at the end of 2018 is

Steps to compute are shown below:

1. Add - Issue of 10,000 shares of common stock = 10,000 × $7 = $70,000 shares

2. Add - Issue of 20,000 shares of common stock = 20,000 × $8 = $160,000 shares

3. Add - net income = $100,000

4. Less - Dividend paid = ($50,000)

5. Less - treasury stock = (3000 × $10) = ($30,000)

So, the total shareholders' equity balance at the end of the year

= $70,000 + $160,000 + $100,000 - $50,000 - $30,000

= $250,000

Since, the issue of shares and net income increase the shareholder wealth whereas dividend and treasury stock decrease in the firm capital. So according to this, the items are added and deducted.

Hence, the total shareholders' equity at the end of 2018 is $250,000