Q24E_2 - Horngren'S Financial And Managerial Accounting

Question

Journalizing issuance of stock and preparing the stockholders’ equity section of the balance sheet

The charter of Evergreen Corporation authorizes the issuance of 900 shares of preferred stock and 1,400 shares of common stock. During a two-month period, Evergreen completed these stock-issuance transactions:

Mar. 23 Issued 230 shares of \(3 par value common stock for cash of \)15 per share.

Apr. 12 Received inventory with a market value of \(27,000 and equipment with a market value of \)19,000 for 320 shares of the \(3 par value common stock.

17 Issued 900 shares of 5%, \)20 par value preferred stock for \(20 per share.

Requirements

2. Prepare the stockholders’ equity section of the Evergreen balance sheet as of April 30, 2018, for the transactions given in this exercise. Retained Earnings has a balance of \)73,000 at April 30, 2018

Step-by-Step Solution

Answer

Total Shareholders’ Equity of the company on April 30, 2018 is $122,450.

Step 1: Basic Introduction

$\begin{array}{c}\mathrm{CommonStock}=\mathrm{NumberofShares}\times \mathrm{ParValue}\\ \mathbf{=}\left(230+320\right)\mathbf{\times }\mathbf{\$}\mathbf{3}\\ =\$1,650\end{array}$

$\begin{array}{c}\mathrm{Paid}-\mathrm{incapital},\mathrm{inexcessofpar}-\mathrm{commonstock}=\mathrm{MarchIssue}+\mathrm{AprilIssue}\\ =\$2,760+\$45,040\\ =\$47,800\end{array}$

Step 2: Partial Balance Sheet-

Evergreen Corporation Partial Balance sheet
Shareholders’ equity section
Common stock	$1,650
Paid-in capital, in excess of par- common stock	$47,800
Retained earnings	$73,000
Total Shareholders’ Equity	$122,450