Question

Thurman Corporation issued 450,000 shares of $.50 par value capital stock at the date of incorporation for cash at a price of $4 per share. During the first year of operations, the company earned, $100,000, and declared a dividend of $40,000. At this end of the first year operations, the balance of the Common Stock account is :
a) 1,800,000
b) $225,000
c) $1,860,000
d) $1,820,000

Answer 1

Answer:

b) $225,000

Explanation:

Common Stock ($0.50 x 450,000)                 $225,000

Discount on capital (($4-$0.5) x 450,000      $1,575,000

Retained Earning ( $100,000 - $40,000 )      $60,000                    

Total Equity                                                      $1,860,000

Shares are recorded in the common stock account at the par value. Difference of $4 and $0.5 is recorded as add in capital excess of par common shares.