Question

Witt Corporation received its charter during January of this year. The charter authorized the following stock:

Answer 1

Answer:

Stockholders' Equity = $735,000

Explanation:

This can be prepared as follows:

Witt Corporation

Stockholders' Equity Section of the Balance Sheet

At December 31, 2011

Details                                                                      Amount ($)  

Common stock (w.1)                                                  344,000

Preferred stock (w.2)                                                   65,000

Additional paid in capital - Common stock (w.3)      181,000

Additional paid in capital - Preferred stock (w.4)      49,000

Net income                                                                 96,000  

Stockholders' Equity                                                 735,000  

Workings:

w.1. Common stock = (Number of common shares issued in transaction a + Number of common shares issued in transaction c) * Par value of common stock = (40,000 + 3,000) * $8 = $344,000

w.2. Preferred stock = (Number of preferred shares issued in transaction b + Number of preferred shares sold in transaction c) * Par value of preferred stock = (5,500 + 1,000) * $10 = $65,000

w.3. Additional paid in capital - Common stock = (Number of common shares issued in transaction a * (Selling price per share of the transaction - Par value of common stock)) + (Number of common shares issued in transaction c * (Selling price per share of the transaction - Par value of common stock)) = (40,000 * ($12 - $8)) + (3,000 * ($15 - $8)) = $181,000

w.4. Additional paid in capital - Preferred stock = (Number of preferred shares issued in transaction b * (Selling price per share of the transaction - Par value of preferred stock)) + (Number of preferred shares issued in transaction c * (Selling price per share of the transaction - Par value of preferred stock)) = (5,500 * ($16 - $10)) + (1,000 * ($26 - $10)) = $49,000