91Ó°ÊÓ

Hatch Company has two classes of capital stock outstanding: 8%, \(20 par preferred and \)5 par common. At December 31, 2017, the following accounts were included in stockholders’ equity.

Preferred Stock, 150,000 shares \( 3,000,000

Common Stock, 2,000,000 shares 10,000,000

Paid-in Capital in Excess of Par—Preferred Stock 200,000

Paid-in Capital in Excess of Par—Common Stock 27,000,000

Retained Earnings 4,500,000

The following transactions affected stockholders’ equity during 2018.

Jan.1 30,000 shares of preferred stock issued at \)22 per share.

Feb.1 50,000 shares of common stock issued at \(20 per share.

June 1 2-for-1 stock split (par value reduced to \)2.50).

July 1 30,000 shares of common treasury stock purchased at \(10 per

share. Hatch uses the cost method.

Sept.15 10,000 shares of treasury stock reissued at \)11 per share.

Dec.31 The preferred dividend is declared, and a common dividend of 50¢

per share is declared.

Dec. 31 Net income is $2,100,000.

Instructions

Prepare the stockholders’ equity section for Hatch Company at December 31, 2018. Show all supporting computations.

Step by step solution

01

Meaning of Stockholders’ Equity

The total value of shareholders' equity reflects the company's net income. Stockholders’ Equity can be derived from the valuation of capitalized stock value, additional paid-in capital, and retained earnings.

02

Preparing Stockholders’ Equity

HATCH COMPANY Stockholders’ Equity December 31, 2018
Capital Stock Preferred stock, $20par, 8%,180,000 shares issued and outstanding	$3,600,000
Common stock, $2.5 par, 4,100,000 shares issued, 4,080,000 shares outstanding Total capital stock	10,250,000 13,850,000
Additional paid-in-capital In excess of par-preferred $ 260,000 In excess of par-common 27,750,000 From Treasury stock 10,000 Total paid-in capital	28,020,000 41,870,000
Retained Earnings Total paid-in capital and retained earnings Less: Treasury Stock	4,272,000 46,142,000 200,000
Total stockholders’ Equity	$45,942,000

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