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29 December, 10:14

Cole Corporation was organized on January 1, Year 1. The company was authorized to issue 100,000 shares of $1 par value common stock. During the year, the company had the following transactions relating to stockholders' equity: Issued 40,000 shares of common stock at $8 per share. Reported a net income of $60,000. Paid dividends of $30,000. Purchased 5,000 shares of treasury stock at $10 per share. What is total stockholders' equity at the end of Year 1? Multiple Choice a) $300,000 b) $350,000 c) $400,000 d) $460,000

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  1. 29 December, 13:30
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    Answer: a) $300,000

    Explanation:

    Stockholders Equity shows just how much of the company is being financed by the shareholders. It is calculated by,

    Total Stockholders Equity for the Year = Issued and Outstanding Shares + Retained Earnings - Treasury Stock

    Retained Earnings = Opening Retained Earnings + Net Income - Dividends

    First year of operation so no Opening Retained Earnings.

    = $0 + 60,000 - $30,000

    = $30,000

    Total Stockholders Equity for the Year = (40,000 * $8) + $30,000 - (5,000 * 10)

    = 320,000 + 30,000 - 50,000

    = $300,000
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