On January 1,Gucci Brothers Inc.started the year with a $492,000 balance in Retained Earnings and a $605,000 balance in Common Stock.During the year,the company reported net income of $92,000,paid a dividend of $15,200,and issued more common stock for $27,500.What is total stockholders' equity at the end of the year?
A)$1,231,700.
B)$1,097,000.
C)$1,201,300.

Question

Quizplus · Accepted Answer

The formula for calculating total stockholders' equity is:
Total Stockholders' Equity = Retained Earnings + Common Stock + Additional Paid-in Capital
Given in the problem:
Retained Earnings = $492,000
Common Stock = $605,000
Net Income = $92,000
Dividend Paid = $15,200
Additional Common Stock issued = $27,500
Calculate Additional Paid-in Capital
Additional Paid-in Capital = Additional Common Stock issued - Par Value of Common Stock
Additional Paid-in Capital = $27,500 - $605,000 = -$577,500
As the value is negative, it indicates that there was a discount on the issue of stock.
Now, let's calculate Total Stockholders' Equity:
Total Stockholders' Equity = Retained Earnings + Common Stock + Additional Paid-in Capital
Total Stockholders' Equity = $492,000 + $605,000 + (-$577,500)
Total Stockholders' Equity = $519,500
Therefore, the total stockholders' equity at the end of the year is $1,201,300 (option C).