Dillinger, Inc.is planning to raise additional capital for expansion by selling 500,000 common shares at $16 each.The existing stockholders' equity section of their balance sheet is shown below.What will the retained earnings figure be immediately after the sale of the new equity?
Common stock;$1 par value;authorized, 3,000,000 shares;issued and

A)$12,252,000
B)$14,000,000
C)$4,752,000
D)$3,500,000

Question

Dillinger, Inc.is planning to raise additional capital for expansion by selling 500,000 common shares at $16 each.The existing stockholders' equity section of their balance sheet is shown below.What will the retained earnings figure be immediately after the sale of the new equity?
Common stock;$1 par value;authorized, 3,000,000 shares;issued and

A)$12,252,000 
B)$14,000,000 
C)$4,752,000 
D)$3,500,000

Quizplus · Accepted Answer

The current common stock issued is 1,500,000 shares (1,000,000 + 500,000). So the total capital raised from equity is:
1,500,000 shares x $1 par value = $1,500,000

The additional 500,000 shares to be sold will raise:
500,000 shares x $16 per share = $8,000,000

So the new total capital raised from equity will be:
$1,500,000 + $8,000,000 = $9,500,000

The retained earnings figure can be calculated as follows:
Total assets - Total liabilities - Total capital raised from equity
= $28,000,000 - $8,000,000 - $9,500,000
= $10,500,000

Therefore, the retained earnings figure will be $10,500,000 after the sale of the new equity.