Chapter 13, Problem 1BPSB

To determine

Concept Introduction:

Stockholders Equity Transactions:

Stockholders equity Transactions refer to, transactions carried out by an organisation by issuing its shares. The main purpose of issuance of shares is to raise funds, but shares could also be issued, to pay dividends in the form of "Stock Dividends", Pay off Lenders, Creditors, Promoters in lieu of Cash etc.

Requirement 1

Explanation of entries passed for Stockholders Equity Transactions.

Answer to Problem 1BPSB

1. Being 3000 Common shares of Par Value $1, issued for $40 per Share.
2. Being Organisation Expenses paid, by issuing 1000 Common Shares of Par Value $1 for $40 per Share.
3. Being $13300, Accounts Receivable worth $8000, Building of $ 37000 and Notes Payable of $ 18300, Introduced by Issuing 800 Common Shares of Par Value $1, For $50 per share.
4. Being 1200 Common Shares of Par Value $1, Issued For $60 per Share.

Explanation of Solution

The above solution can be explained as below:

1. Cash Received from Shares is $120000, of which $117000 has been paid in excess of par value. Thus Par Value of Shares are $3000.

     $\text{No}\text{. of Shares Issued=}\frac{\text{Total Par Value of Shares}}{\text{Par Value Per Share}}$

     $\text{No}\text{. of Shares Issued=}\frac{3000}{1}$

     $\text{No}\text{. of Shares Issued=3000 Shares}$

2. Total Organisation Expenses is $40000, of which $39000 has been paid in Excess of Par Value. Thus Par Value is $ 1000.

     $\text{No}\text{. of Shares Issued=}\frac{\text{Total Par Value of Shares}}{\text{Par Value Per Share}}$

     $\text{No}\text{. of Shares Issued=}\frac{1000}{1}$

     $\text{No}\text{. of Shares Issued=1000 Shares}$

3. Total Assets brought in amount to $58300, and Total Liabilities introduced is $18300, Thus net assets are worth $40000. Of $40000, $39200 has been considered as amount in excess of Par Value. Thus Par Value is $800

     $\text{No}\text{. of Shares Issued=}\frac{\text{Total Par Value of Shares}}{\text{Par Value Per Share}}$

     $\text{No}\text{. of Shares Issued=}\frac{800}{1}$

     $\text{No}\text{. of Shares Issued=800 Shares}$

4. Cash Received from Shares is $60000, of which $58800 has been paid in excess of par value. Thus Par Value of Shares are $1200.

     $\text{No}\text{. of Shares Issued=}\frac{\text{Total Par Value of Shares}}{\text{Par Value Per Share}}$

     $\text{No}\text{. of Shares Issued=}\frac{1200}{1}$

     $\text{No}\text{. of Shares Issued=1200 Shares}$

To determine

Concept Introduction:

Stockholders Equity Transactions:

Stockholders equity Transactions refer to, transactions carried out by an organisation by issuing its shares. The main purpose of issuance of shares is to raise funds, but shares could also be issued, to pay dividends in the form of "Stock Dividends", Pay off Lenders, Creditors, Promoters in lieu of Cash etc.

Requirement 2

How many shares are outstanding at the end of the year?

Answer to Problem 1BPSB

6000 Shares are Outstanding at the end of the year.

Explanation of Solution

The above solution can be explained as below:

1. Cash Received from Shares is $120000, of which $117000 has been paid in excess of par value. Thus Par Value of Shares are $3000.

     $\text{No}\text{. of Shares Issued=}\frac{\text{Total Par Value of Shares}}{\text{Par Value Per Share}}$

     $\text{No}\text{. of Shares Issued=}\frac{3000}{1}$

     $\text{No}\text{. of Shares Issued=3000 Shares}$

2. Total Organisation Expenses is $40000, of which $39000 has been paid in Excess of Par Value. Thus Par Value is $ 1000.

     $\text{No}\text{. of Shares Issued=}\frac{\text{Total Par Value of Shares}}{\text{Par Value Per Share}}$

     $\text{No}\text{. of Shares Issued=}\frac{1000}{1}$

     $\text{No}\text{. of Shares Issued=1000 Shares}$

3. Total Assets brought in amount to $58300, and Total Liabilities introduced is $18300, Thus net assets are worth $40000. Of $40000, $39200 has been considered as amount in excess of Par Value. Thus Par Value is $800

     $\text{No}\text{. of Shares Issued=}\frac{\text{Total Par Value of Shares}}{\text{Par Value Per Share}}$

     $\text{No}\text{. of Shares Issued=}\frac{800}{1}$

     $\text{No}\text{. of Shares Issued=800 Shares}$

4. Cash Received from Shares is $60000, of which $58800 has been paid in excess of par value. Thus Par Value of Shares are $1200.

     $\text{No}\text{. of Shares Issued=}\frac{\text{Total Par Value of Shares}}{\text{Par Value Per Share}}$

     $\text{No}\text{. of Shares Issued=}\frac{1200}{1}$

     $\text{No}\text{. of Shares Issued=1200 Shares}$

   Total no. of shares calculated from a. through d. comes to 6000 shares

To determine

Concept Introduction:

Paid in Capital:

Paid in Capital are total amounts of cash received or Services/Assets or Liabilities valued in lieu of Shares of the Company.

Requirement 3

Total Amount of Paid in Capital at the end of the year?

Answer to Problem 1BPSB

Total Paid in Capital at the end of the year, is $260000.

Explanation of Solution

After Adding total Amounts of Cash Received in Entry (a) and (d), Total amounts of Cash is $180000.

Total Value of Organization Expenses are valued at $40000 in (b)

Total Value of Assets and Liabilities introduced in (c) amounts to $40000

Thus Total of all the above comes to $260000.

To determine

Requirement 4

Concept Introduction:

Book Value Per Share:

Book Value per share is a simple calculation of Total Shareholders Equity, divided by number of shares outstanding at the end of the year.

Book Value per Share.

Answer to Problem 1BPSB

Book Value per Share is $48.2 per share.

Explanation of Solution

The above solution can be explained as below:

  $\text{Book Value Per Share=}\frac{\text{Total Shareholders Equity}}{\text{Total No}\text{. of Shares Outstanding}}$

  $\text{Book Value Per Share=}\frac{6000+283200}{6000}$

  $\text{Book Value Per Share=}\frac{289200}{6000}$

  $\text{Book Value Per Share= \$48}\text{.2}$