The statement of stockholders' equity shows an $8,000 increase in the common stock account, a $22,000 increase in the paid-in capital in excess of par--common stock account, and a $100,000 increase in retained earnings. If the common stock has a par value of $3 and dividends of $10,000 were declared and paid during the year, what is the amount of net income for the year?

Question

Quizplus · Accepted Answer

The increase in common stock is $8,000, which means that 8,000 ÷ 3 (the par value of common stock) = 2,667 new shares were issued.

The increase in paid-in capital in excess of par--common stock is $22,000, which means that the issue price of the shares was $25 ($3 par value + $22 excess). Therefore, 2,667 new shares were issued at $25 per share for a total of $66,675 ($25 x 2,667).

The increase in retained earnings is $100,000. Dividends of $10,000 were declared and paid during the year, which means that the company had net income of $110,000 ($100,000 increase in retained earnings + $10,000 dividends paid).

The Statement of Stockholders' Equity Shows an $8,000 Increase in the Common