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Chapter 15: Question 3BE (page 811)

Wilco Corporation has the following account balances at December 31, 2017.

Common stock, \(5 par value \) 510,000

Treasury stock 90,000

Retained earnings 2,340,000

Paid-in capital in excess of par鈥攃ommon stock 1,320,000

Prepare Wilco鈥檚 December 31, 2017, stockholders鈥� equity section.

Short Answer

Expert verified

The total stockholders鈥� equity of Wilco on December 31, 2017, is $4,080,000.

Step by step solution

01

Meaning of Stockholders’ equity

In simple words, company net worth (or shareholders' equity) measures the amount of money that the owners of the company invested into the business.

02

Preparing Wilco’s Stockholders’ Equity.

WILCO CORPORATION

Stockholders鈥� equity

December 31, 2017


Common stock, $5 par value

$ 510,000

Paid-in capital in excess

of par-common stock

1,320,000

Total paid-in capital

1,830,000

Retained earnings

2,340,000

4,170,000

Less: Treasury stock

90,000

Total stockholders鈥� equity

4,080,000

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Most popular questions from this chapter

(Equity Items on the Balance Sheet) The following are selected transactions that may affect stockholders鈥� equity.

  1. Recorded accrued interest earned on a note receivable.
  2. Declared a cash dividend.
  3. Declared and distributed a stock split.
  4. Approved a retained earnings restriction.
  5. Recorded the expiration of insurance coverage that was previously recorded as prepaid insurance.
  6. Paid the cash dividend declared in item 2 above.
  7. Recorded accrued interest expense on a note payable.
  8. Declared a stock dividend.
  9. Distributed the stock dividend declared in item 8.

Instructions

In the following table, indicate the effect each of the nine transactions has on the financial statement elements listed. Use the following code: I = Increase, D = Decrease, NE = No effect.

Item

Asset

Liabilities

Stockholders鈥� Equity

Paid-in Capital

Retained

Earnings

Net Income

(Computation of Book Value per Share) Morgan Sondgeroth Inc. began operations in January 2015 and reported the following results for each of its 3 years of operations.

2015 \(260,000net loss 2016 \)40,000 net loss 2017 \(800,000 net income

At December 31, 2017, Morgan Sondgeroth Inc. capital accounts were as follows.

8% cumulative preferred stock, par value \)100;

authorized, issued, and outstanding 5,000 shares \(500,000

Common stock, par value \)1.00; authorized 1,000,000 shares;

issued and outstanding 750,000 shares \(750,000

Morgan Sondgeroth Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Sondgeroth began operations. The state law permits dividends only from retained earnings.

Instructions

  1. Compute the book value of the common stock on December 31, 2017.
  2. Compute the book value of the common stock on December 31, 2017, assuming that the preferred stock has a liquidating value of \)106 per share.

(Cash Dividend and Liquidating Dividend) Lotoya Davis Corporation has 10 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 80 cents per share cash dividend to stockholders of record as of June 14, payable June 3

Instructions

  1. Prepare the journal entry for each of the dates above, assuming the dividend represents a distribution of earnings.
  2. How would the entry differ if the dividend were a liquidating dividend?

Explain each of the following terms: authorized capital stock, unissued capital stock, issued capital stock, outstanding capital stock, and treasury stock.

(Preferred Dividends) The outstanding capital stock of Edna Millay Corporation consists of 2,000 shares of \(100 par value, 8% preferred, and 5,000 shares of \)50 par value common.

Instructions

Assuming that the company has retained earnings of $90,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.

  1. The preferred stock is noncumulative and nonparticipating.
  2. The preferred stock is cumulative and nonparticipating.
  3. The preferred stock is cumulative and participating. (Round dividend rate percentages to four decimal places.)
See all solutions

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