Question

National League Gear has two classes of stock authorized: 4%, $20 par preferred, and $5 par value common. The following transactions affect stockholders’ equity during 2021, National League’s first year of operations:

February	2		Issue 1.4 million shares of common stock for $16 per share.
February	4		Issue 410,000 shares of preferred stock for $23 per share.
June	15		Purchase 140,000 shares of its own common stock for $11 per share.
August	15		Resell 105,000 shares of treasury stock for $26 per share.
November	1		Declare a cash dividend on its common stock of $1.40 per share and a $328,000 (4% of par value) cash dividend on its preferred stock payable to all stockholders of record on November 15. (Hint: Dividends are not paid on treasury stock.)
November	30		Pay the dividends declared on November 1.

2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2021. Net income for the year was $4,710,000. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Requirement 2:

NATIONAL LEAGUE GEAR
Balance Sheet
(Stockholders' Equity section)
December 31,2021
Stockholders' equity:
Common stock	$7,000,000
Preferred stock	$8,200,000
Paid-in capital in excess of par-common	$15,400,000
Paid-in capital in excess of par-preferred	$1,230,000
Paid-in capital in excess from treasury stock	$1,575,000
Total paid-capital	$33,405,000
Retained earnings	$2,471,000
Total paid-in capital and retained earnings	$35,876,000
(Less): Treasury stock	($385,000)
Stockholders' equity	$35,491,000

Calculations:

	Common stock	Preferred stock	Paid-in capital in excess of par- Common stock	Paid-in capital in excess of par- Preferred stock	Paid-in capital in excess of par from Treasury stock	Retained Earnings	Treasury stock
Feb 2	$7,000,000		$15,400,000
Feb 4		$8,200,000		$1,230,000
Jun 15							$1,540,000
Aug 15					$1,575,000		($1,155,000)
Nov 1						$4,710,000
Nov 30						($2,239,000)
Total	$7,000,000	$8,200,000	$15,400,000	$1,230,000	$1,575,000	$2,471,000	$385,000

Dividends:

Outstanding common shares
New issue	1,400,000
Treasury stock	-140,000
Sale of treasury stock	105,000
Total	1,365,000

Common stock dividend [1,365,000 x $1.40]	$1,911,000
Preferred stock dividend	$328,000
Total dividends	$2,239,000