Lanier Tech
This company was incorporated as a new business on January 1, 2019. The company is authorized to issue 50,000 shares of $5 par common stock and 10,000 shares of 6%, $10 par, cumulative, participating preferred stock. On January 1, 2019, the company issued 8,000 shares of the common stock for $15 per share and 2,000 share of the preferred stock for $30 per share. Net income for the year ended December 31, 2019 was $375,000.
-Refer to Lanier Tech. Assume that no dividends were declared or paid during the first year of operations. What is the dollar amount of total stockholders' equity reported on the balance sheet at December 31, 2019?

Question

Quizplus · Accepted Answer

To calculate the total stockholders' equity reported on the balance sheet at December 31, 2019, we need to consider the following components:
1. Common Stock
2. Preferred Stock
3. Retained Earnings
Let's calculate each component:
1. Common Stock:
The company issued 8,000 shares of common stock at $15 per share. The par value is $5 per share, but they were issued at a premium (i.e., $15 - $5 = $10 premium per share).
Common Stock at Par Value = Number of Shares Issued × Par Value per Share
Common Stock at Par Value = 8,000 shares × $5/share = $40,000
Premium on Common Stock = (Issue Price - Par Value) × Number of Shares Issued
Premium on Common Stock = ($15 - $5) × 8,000 shares = $10 × 8,000 shares = $80,000
Total Contribution from Common Stock = Common Stock at Par Value + Premium on Common Stock
Total Contribution from Common Stock = $40,000 + $80,000 = $120,000
2. Preferred Stock:
The company issued 2,000 shares of preferred stock at $30 per share. The par value is $10 per share, so they were also issued at a premium.
Preferred Stock at Par Value = Number of Shares Issued × Par Value per Share
Preferred Stock at Par Value = 2,000 shares × $10/share = $20,000
Premium on Preferred Stock = (Issue Price - Par Value) × Number of Shares Issued
Premium on Preferred Stock = ($30 - $10) × 2,000 shares = $20 × 2,000 shares = $40,000
Total Contribution from Preferred Stock = Preferred Stock at Par Value + Premium on Preferred Stock
Total Contribution from Preferred Stock = $20,000 + $40,000 = $60,000
3. Retained Earnings:
Since no dividends were declared or paid during the first year, the net income for the year is added to retained earnings.
Retained Earnings = Net Income for the Year
Retained Earnings = $375,000
Now, let's sum up all the components to find the total stockholders' equity:
Total Stockholders' Equity = Total Contribution from Common Stock + Total Contribution from Preferred Stock + Retained Earnings
Total Stockholders' Equity = $120,000 + $60,000 + $375,000
Total Stockholders' Equity = $555,000
Therefore, the dollar amount of total stockholders' equity reported on the balance sheet at December 31, 2019, is $555,000, which corresponds to option (c).

Lanier Tech This Company Was Incorporated as a New Business on January