91Ó°ÊÓ

Shareholders' equity represents the total net worth of a company. This can be calculated by subtracting all liabilities from total assets. Shareholders' equity is also represented as the owner of the company.

1) Total Assets-decrease $2,000

Working note:-

$$\begin{gathered} \mathrm{Total}\mathrm{Asset}=\frac{\mathrm{Common}\mathrm{stock}}{\$\mathrm{Par}\mathrm{value}}×\mathrm{Per}\mathrm{share}\mathrm{dividend} \\ =\frac{2,000}{5}×\$0·50 \\ =\$2,000 \end{gathered}$$

2) There is no effect on common stock

3) Paid-in capital in excess of par also showed no effect

4) The retained earnings decreases by $2,000

5) Assuming the effect of transaction, shareholders equity also decreases by $2,000

1) There is no effect on the total asset

2) Common stock increases by $2,000

Working Notes:-

$$\begin{gathered} \mathrm{Common}\mathrm{share}=\left[\left(\mathrm{Common}\mathrm{shares}×\mathrm{Rate}\mathrm{of}\mathrm{dividend}\right)×\mathrm{Per}\mathrm{value}\mathrm{share}\right] \\ =\left[\left(4,000×10\%\right)×\$5\right] \\ =\left[400×\$5\right] \\ =2,000 \end{gathered}$$

Working Notes:-

$$\begin{gathered} \mathrm{Paid}-\mathrm{in}\mathrm{capital}=\left(\mathrm{Shares}×\mathrm{Per}\mathrm{value}\mathrm{stock}\right)-\mathrm{Total}\mathrm{Asset} \\ =\left(400×\$14\right)-2,000 \\ =5,600-2,000 \\ =3,000 \end{gathered}$$

4) Retained earnings decrease by $5,600

Working Notes:-

$$\begin{gathered} \mathrm{Retained}\mathrm{earnings}=\mathrm{Share}×\mathrm{Per}\mathrm{value}\mathrm{stock} \\ =400×\$14 \\ =5,600 \end{gathered}$$

5) There is no effect determined in shareholders’ equity

1) There is no effect on total asset

2) Common stock increases by $6,000

Working Notes:-

$$\begin{gathered} \mathrm{Common}\mathrm{stock}=\left(\mathrm{Shares}×\mathrm{Stock}\mathrm{dividend}\mathrm{rate}\right)×\mathrm{Per}\mathrm{value}\mathrm{book} \\ =\left(4,000×30\%\right)×\$5 \\ =\left(4,000×\frac{30}{100}\right)×\$5 \\ =1,200×\$5 \\ =6,000 \end{gathered}$$

3) There is no effect in paid-in capital in excess of par.

4) Retained earnings decrease by $6,000

5) Total stockholders’ equity shows no effect.

1) Total assets-decrease by $12,000

Working Note:-

$$\begin{gathered} \mathrm{Total}\mathrm{asset}=\mathrm{Shares}×\mathrm{per}\mathrm{value} \\ =2,000×\$6 \\ =12,000 \end{gathered}$$

2) There is no effect on common stock

3) There is also no effect in paid-in capital in excess of par

4) Retained earnings decrease by $12,000

Working notes:-

$$\begin{gathered} \mathrm{Retained}\mathrm{Earnings}=\mathrm{Dividend}-\mathrm{Gain} \\ =20,000-\$8,000 \\ =12,000 \end{gathered}$$

5) Total Stockholders’ equity decreases by $12,000

Note:-

The journal entries made for the previous transaction are:

To record increase in value of securities to be issued

1) Total assets have no effect

2) There is no effect on common stock

3) There is also no effect on paid-in capital in excess of par

4) There is no effect on retained earnings

5) Total shareholders’ have no effect.