Question

Shelby Corporation was organized in January to operate an air-conditioning sales and service business. The charter issued by the state authorized the following capital stock:

  Common stock, $1 par value, 200,000 shares.

  Preferred stock, $10 par value, 6 percent, 50,000 shares.

During January and February, the following stock transactions were completed:

a.	Collected $676,000 cash and issued 26,000 shares of common stock.
b.	Issued 18,000 shares of preferred stock at $36 per share; collected in cash.

Net income for the year was $56,000; cash dividends declared and paid at year-end were $10,000.

Required:

Prepare the stockholders’ equity section of the balance sheet at December 31.

SHELBY CORPORATION
Balance Sheet (Partial)
At December 31
Stockholders’ Equity
Contributed Capital:
Total Contributed Capital	0
Total Stockholders’ Equity	$0

Answer 1

SHELBY CORPORATION

Balance Sheet (Partial)

At December 31

Stockholders’ Equity

Contributed capital:
Preferred stock	$1,80,000
Additional paid-in capital, preferred stock	$4,68,000
Common stock	$26,000
Additional paid-in capital, common stock	$6,50,000
Total contributed capital	$13,24,000
Retained earnings	$46,000
Total stockholders' equity	$13,70,000

Preferred stock                        = 18000 Shares x $10    = $1,80,000

Additional paid-in capital, preferred stock = 18000 x $26 = $4,68,000

Common stock                        = 26000 Shares x $1      = $26,000

Additional paid-in capital, common stock = $676000 - $26000 = $6,50,000

Retained earnings                    = $56,000 - $10000 = $46,000