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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Statement of Shareholders’ Equity On January 1, 2019, Knox Company showed the following alphabetical list of shareholders’ equity items:

Chapter 4, Problem 9P, Statement of Shareholders Equity On January 1, 2019, Knox Company showed the following alphabetical

During 2019, the following events occurred and were properly recorded by the company:

  1. 1. Knox issued 2,000 shares of common stock for $25 per share.
  2. 2. Knox issued 110 shares of preferred stock for $116 per share.
  3. 3. Knox reacquired 400 shares of its common stock as treasury stock at a cost of $26 per share. (Hint: Record the reacquisition cost in a Treasury Stock account.)
  4. 4. Knox earned net income of $57,000.
  5. 5. Knox paid a $7 per share dividend on the preferred stock and a $1.25 per share dividend on the common stock outstanding at the end of 2019 (treasury stock is not entitled to dividends).

Required:

Prepare a statement of shareholders’ equity for 2019, including retained earnings.

To determine

Prepare a statement of shareholders’ equity including retained earnings for the year 2019.

Explanation

Statement of stockholder's equity: This statement reports the beginning stockholder's equity and all the changes which led to ending stockholder's equity. Additional capital, net income from income statement is added to and drawings or dividends are deducted from beginning stockholder's equity to arrive at the end result, closing balance of stockholder's equity.

Statement of shareholders’ equity including retained earnings for the year 2019 is prepared as follows

Figure (1)

Working notes:

(1)  Calculate the amount of preferred dividend:

Preferreddividend=(TotalNumberofpreferredshares×Marketvaluepershare)=610shares(3)×$7=$4,270

(2) Calculate the number of existing preferred shares:

Numberofexistingpreferredshares=AmountofpreferredstockParvalueofpreferredstock=$50,000$100=500shares

(3) Calculate the total number of preferred Shares:

Totalnumberofpreferredshares=(NumberofExistingpreferredshares+Additionalpreferredsharesissued)=500shares(2)+110shares=610

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