Question

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

Answer 1

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