Cole Corporation was organized on January 1, Year 1. The company was authorized to issue 100,000 shares of $1 par value common stock. During the year, the company had the following transactions relating to stockholders' equity: Issued 40,000 shares of common stock at $8 per share. Reported a net income of $60,000. Paid dividends of $30,000. Purchased 5,000 shares of treasury stock at $10 per share. What is total stockholders' equity at the end of Year 1? Multiple Choice a) $300,000 b) $350,000 c) $400,000 d) $460,000

Question

Ariel

Business

5 July, 12:00

Cole Corporation was organized on January 1, Year 1. The company was authorized to issue 100,000 shares of $1 par value common stock. During the year, the company had the following transactions relating to stockholders' equity: Issued 40,000 shares of common stock at $8 per share. Reported a net income of $60,000. Paid dividends of $30,000. Purchased 5,000 shares of treasury stock at $10 per share. What is total stockholders' equity at the end of Year 1? Multiple Choice a) $300,000 b) $350,000 c) $400,000 d) $460,000

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Answers (1)

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Steven · Answer 1

Answer: a) $300,000

Explanation:

Stockholders Equity shows just how much of the company is being financed by the shareholders. It is calculated by,

Total Stockholders Equity for the Year = Issued and Outstanding Shares + Retained Earnings - Treasury Stock

Retained Earnings = Opening Retained Earnings + Net Income - Dividends

First year of operation so no Opening Retained Earnings.

= $0 + 60,000 - $30,000

= $30,000

Total Stockholders Equity for the Year = (40,000 * $8) + $30,000 - (5,000 * 10)

= 320,000 + 30,000 - 50,000

= $300,000