Question

Problem 3

In Year 1, Kirk Company was started when it issued 1,200 shares of $5 par value common stock at a market price of $20 per share. The company repurchased 500 shares at a market price of $15 per share. During the year, Kirk Company earned $50,000 of revenue on account and $25,000 of cash revenue. Operating expenses were $40,000. The company also paid a $5,000 dividend on December 31.

What is the total amount of stockholders’ equity at December 31, Year 1 for Kirk Company?

Answer 1

Net income = Revenue - Operating expenses

= $50000+25000-40000 = $35,000

Retained earnings = Net income - Dividend paid

= $35000-5000 = $30,000

Paid-in capital:
Common stock, $5 par (1200*5)	$6000
Paid-In Capital in Excess of Par—Common Stock (20-5)*1200	18000
Total paid-in capital		$24000
Retained earnings		30000
Total		$54000
Less: Treasury stock (500*15)		(7500)
Total stockholders’ equity			$46500