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Homework answers / question archive / McKenny Corporation, whose year end is December 31, lost some of its accounting records in a recent fire on June 25, 20X6
McKenny Corporation, whose year end is December 31, lost some of its accounting records in a recent fire on June 25, 20X6. The following information has been salvaged from the rubble.
The preferred stock account has a balance of $225,000 and the par of each share is $50. The common stock has a par of $10 per share and the average issue price of a share of common stock was $13.50. The paid-in capital in excess of par-preferred account has an $11,250 balance. There are 80,000 shares of common stock issued. The retained earnings account had a balance of $152,600 at January 1, 20X6, and a balance of $138,100 at June 25, 20X6.
a) Determine the number of shares of preferred stock issued.
b) What is the balance in the common stock account?
c) What was the average issue price of a share of preferred stock?
d) Determine the balance in the paid-in capital in excess of par-
common account.
e) What is the total paid-in capital?
f) Determine the amount of dividends declared during the period from January 1, 20X6, through June 25, 20X6.
a) Determine the number of shares of preferred stock issued.
The amount in the preferred stock account will be equal to number of preferred shares issued X the par value of preferred stock. The par value is given as $50 and the total amount in the preferred stock account is 225,000. The number of shares of preferred stock issued is 225,000/50=4,500.
b) What is the balance in the common stock account?
The balance in the common stock account will be Number of shares issued X par value of common stock. The number of shares issued is 80,000 and the par value is $10. The balance in the common stock account will be 80,000X10=800,000
c) What was the average issue price of a share of preferred stock?
The average issue price will be the total amount received /number of shares. The total amount received is the total of preferred stock account and the paid in capital in excess of par. The preferred stock account has a balance of 225,000 and the paid in capital in excess of par has a balance of 11,250. The total amount is 236,250. The number of shares as calculated in (a) above is 4,500. The average issue price is 236,250/4,500=$52.50
d) Determine the balance in the paid-in capital in excess of par-
common account.
The average issue price of common stock is $13.50. The par value is $10. Therefore the paid in capital in excess of par is $3.50. The number of shares issued is 80,000. The balance in paid in capital in excess of par-common stock will be 80,000X3.50=$280,000
e) What is the total paid-in capital?
Total Paid in Capital is Common Stock + Paid in Capital in excess of par - Common Stock + Preferred Stock + Paid in Capital in excess of par - preferred
Total Paid in Capital = 800,000+280,000+225,000+11,250=$1,316,250
f) Determine the amount of dividends declared during the period from January 1, 20X6, through June 25, 20X6.
The amount of dividends will be equal to the change in retained earnings. The change in retained earnings is 152,600-138,100=$14,500. This will be the amount of dividends declared. The assumption is that there is no entry for net income passed in the retained earnings account in this period.
Closing Retained Earnings = Opening Retained Earnings + Net Income -Dividends
If net income = 0, then
Dividends = Opening Retained Earnings - Closing Retained Earnings
