Analyzing stockholders’ equity (Learning Objectives 2, 3, 4, & 7)

20–25 min.

Mackay, Inc., was organized in 2013. At December 31, 2013, Mackay, Inc.’s balance sheet reported the following stockholders’ equity:

Paid-in Capital:

Preferred Stock, 6%, $8 par, 70,000 shares authorized, none issued Common Stock, $1 par, 140,000 shares authorized, 12,000 shares issued and outstanding Paid-in Capital in Excess of Par Total Paid-in Capital Retained Earnings (deficit)

Total Stockholders’ Equity

$ 0 12,000 33,000

$45,000

(4,000)

$41,000 Stockholders’ Equity Requirements Answer the following questions and make journal entries as needed:

1. What does the 6% mean for the preferred stock? After Mackay, Inc., issues preferred stock, how much in annual cash dividends would Mackay, Inc., expect to pay on 1,500 shares?

2. At what average price per share did Mackay, Inc., issue the common stock during 2013?

3. Were the first-year operations profitable? Give your reasons.

4. During 2014, the company completed the following selected transactions.

Journalize each transaction. Explanations are not required.

a. Issued for cash 5,000 shares of preferred stock at par value.

b. Issued for cash 2,000 shares of common stock at a price of $7 per share.

5. Prepare the stockholders’ equity section of the Mackay, Inc.’s balance sheet at December 31, 2014. Assume net income for the year was $75,000.

AppendixLO1