Preparing The Stockholders' Equity Section Of The Balance Sh

Preparing The Stockholders Equity Section Of The Balance Sh

Witt Corporation received its charter during January 2014. The charter authorized the following capital stock: Preferred stock at 10 percent, par $10, with 21,000 shares authorized; and Common stock, par $8, with 50,000 shares authorized. During 2014, the following transactions occurred: issued 40,000 shares of common stock to organizers at $12 per share; sold 5,500 shares of preferred stock at $16 per share; sold 3,000 shares of common stock at $15 per share and 1,000 shares of preferred stock at $26; net income for the year was $96,000. Prepare the Stockholders’ Equity section of the balance sheet at December 31, 2014.

Paper For Above instruction

The preparation of the Stockholders’ Equity section of Witt Corporation’s balance sheet at December 31, 2014, involves calculating the contributions from stock issuance and including net income, to reflect the company's equity accurately.

Initially, we need to determine the total amount of contributed capital from the stock transactions during 2014. The transactions involve issuing common and preferred stocks at various prices, and each affects different segments of equity.

Contributed Capital Calculation

Firstly, the issuance of 40,000 common shares to organizers at $12 per share generated a total of:

  • 40,000 shares x $12 = $480,000

Since the par value of common stock is $8, the total par value of these shares is:

  • 40,000 x $8 = $320,000

The excess over the par value, termed additional paid-in capital or paid-in capital in excess of par, is:

  • $480,000 - $320,000 = $160,000

This amount is recorded under contributed capital section as "Paid-in Capital in Excess of Par, Common Stock".

Next, the sale of 5,500 preferred shares at $16 per share yields:

  • 5,500 x $16 = $88,000

The par value of preferred stock is $10, so total par value of preferred stock issued is:

  • 5,500 x $10 = $55,000

The excess is:

  • $88,000 - $55,000 = $33,000

This amount is recorded as "Paid-in Capital in Excess of Par, Preferred Stock".

Subsequently, additional issuance includes 3,000 common shares at $15 per share and 1,000 preferred shares at $26 per share. The respective totals are:

  • Common shares: 3,000 x $15 = $45,000; par value: 3,000 x $8 = $24,000; excess: $21,000.
  • Preferred shares: 1,000 x $26 = $26,000; par value: 1,000 x $10 = $10,000; excess: $16,000.

Adding all these values, the total contributed capital consists of:

  • Common stock: par value $8, total issued 40,000 + 3,000 = 43,000 shares, with a total par value of 43,000 x $8 = $344,000.
  • Paid-in Capital in Excess of Par, Common Stock: $160,000 + $21,000 = $181,000.
  • Preferred stock: par value 5,500 + 1,000 = 6,500 shares, total par value $10 x 6,500 = $65,000.
  • Paid-in Capital in Excess of Par, Preferred Stock: $33,000 + $16,000 = $49,000.

Calculate Total Contributed Capital

Total contributed capital is the sum of the total stock par values plus the additional paid-in capital components:

  • Total common stock: $344,000 (par) + $181,000 (excess) = $525,000
  • Total preferred stock: $65,000 (par) + $49,000 (excess) = $114,000

Adding these, the total contributed capital is:

  • $525,000 + $114,000 = $639,000

Calculating Total Stockholders’ Equity

Adding net income for the year of $96,000 increases retained earnings, which, along with contributions, form total stockholders’ equity. Assuming no dividends paid during 2014 (not specified), retained earnings incorporate the net income:

  • Retained earnings: $96,000

Total Stockholders’ Equity Calculation

Sum of contributed capital and retained earnings:

  • $639,000 (contributed capital) + $96,000 (net income) = $735,000

Final Presentation of Balance Sheet Section

The Stockholders’ Equity section at December 31, 2014, can be summarized as:

  • Contributed Capital: $639,000
  • Retained Earnings: $96,000
  • Total Stockholders’ Equity: $735,000

This comprehensive calculation reflects the stock transactions, net income, and resulting equity, providing a clear and detailed depiction of Witt Corporation’s financial position at the end of 2014.

References

  • Berk, J., & DeMarzo, P. (2020). Fundamentals of Corporate Finance (5th ed.). Pearson.

  • Wild, J. J., Subramanyam, K. R., & Halsey, R. F. (2014). Financial Statement Analysis (11th ed.). McGraw-Hill Education.
  • Penman, S. H. (2012). Financial Statement Analysis and Security Valuation. McGraw-Hill Education.
  • Stickney, C. P., Brown, P., Wahlen, J., & Moreo, M. (2020). Financial Reporting, Financial Statement Analysis, and Valuation. Cengage Learning.
  • Ross, S. A., Westerfield, R. W., & Jaffe, J. (2019). Corporate Finance. McGraw-Hill Education.
  • Brigham, E. F., & Houston, J. F. (2019). Fundamentals of Financial Management (15th ed.). Cengage Learning.
  • Heffernan, T. (2015). Modern Methods of Financial Analysis. Routledge.

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