Lewis Corporation issued 125,000 shares of $5 par value capital stock at date of incorporation for cash at a price of $9 per share. During the first year of operations, the company earned $140,000 and declared a dividend of $100,000. At the end of this first year of operations, the balance of the Capital Stock account is:

Question

Quizplus · Accepted Answer

The initial issuance of 125,000 shares of $5 par value stock at a price of $9 per share results in a total capital stock of $1,125,000 ($5 x 125,000). 
During the first year, the company earned $140,000 and declared a dividend of $100,000. The remaining earnings are known as retained earnings and are disclosed on the balance sheet. 
Therefore, at the end of the first year, the balance of the capital stock account would remain the same at $625,000 ($5 x 125,000).

Lewis Corporation Issued 125,000 Shares of $5 Par Value Capital