Question

# The Company was organized on January 2, 2018. During 2018, the Company issued 40,000 shares at...

The Company was organized on January 2, 2018. During 2018, the Company issued 40,000 shares at \$24 per share, purchased 6,000 shares of treasury stock at \$26 per share, and had net income of \$600,000. What is the total amount of stockholders' equity at December 31, 2018? \$1,280,000 \$1,404,000 \$1,416,000 \$1,440,000

Shares issued = Number of shares x Issue price

= 40,000 x \$24

= \$ 960,000

Treasury stock is a contra account and reduces stockholder’s equity

So, reduction in stockholder’s equity

= Number of shares x Value per share

= 6,000 x \$26

= \$ 156,000

Net income increases stockholder’s equity

So, increase in stockholder’s equity

= \$600,000

So, closing stockholder’s equity

= Opening equity + Net Income – Treasury stock purchase

= \$960,000 + \$600,000 - \$156,000

= \$ 1,404,000

So, as per above calculations, option B is the correct option

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