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Exercise 1-7 (Algo)

Prepare a Statement of Stockholders' Equity (LO1-3)

At the beginning of the year (January 1), Cowpoke Drilling has \[tex]$10,000 of common stock outstanding and retained earnings of \$[/tex]7,500. During the year, Cowpoke reports net income of \[tex]$7,800 and pays dividends of \$[/tex]2,500. In addition, Cowpoke issues additional common stock for \[tex]$7,300.

\ \textless \ strong\ \textgreater \ Required:\ \textless \ /strong\ \textgreater \
Prepare the statement of stockholders' equity at the end of the year (December 31).

\[
\begin{array}{|l|l|l|l|}
\hline \multicolumn{4}{|c|}{\text{COWPOKE DRILLING}} \\
\hline \multicolumn{4}{|c|}{\text{Statement of Stockholders' Equity}} \\
\hline \multicolumn{4}{|c|}{\text{For the Year Ended December 31}} \\
\hline & \text{Common Stock} & \text{Retained Earnings} & \text{Total Stockholders' Equity} \\
\hline \text{Beginning balance} & \$[/tex]10,000 & \[tex]$7,500 & \$[/tex]17,500 \\
\hline \text{Issuance of common stock} & \[tex]$7,300 & & \$[/tex]7,300 \\
\hline \text{Net income} & & \[tex]$7,800 & \$[/tex]7,800 \\
\hline \text{Dividends} & & (\[tex]$2,500) & (\$[/tex]2,500) \\
\hline \text{Ending balance} & \[tex]$17,300 & \$[/tex]12,800 & \$30,100 \\
\hline
\end{array}
\]



Answer :

GinnyAnswer
Sure, let's go through the preparation of the statement of stockholders' equity for Cowpoke Drilling for the year ended December 31 following the provided structure:

### COWPOKE DRILLING
### Statement of Stockholders' Equity
### For the Year Ended December 31
[tex]\[ \begin{array}{|l|r|r|r|} \hline & \text{Common Stock} & \text{Retained Earnings} & \text{Total Stockholders' Equity} \\ \hline \text{Beginning balance} & \$10,000 & \$7,500 & \$17,500 \\ \hline \text{Additions:} & & & \\ \hspace{0.5cm}\text{Net Income} & & \$7,800 & \$7,800 \\ \hline \text{Subtractions:} & & & \\ \hspace{0.5cm}\text{Dividends Paid} & & (\$2,500) & (\$2,500) \\ \hline \text{Common Stock Issued} & \$7,300 & & \$7,300 \\ \hline \text{Ending balance} & \$17,300 & \$12,800 & \$30,100 \\ \hline \end{array} \][/tex]

Explanation:

1. Beginning Balance (common stock and retained earnings):
- Common stock: \[tex]$10,000 - Retained earnings: \$[/tex]7,500
- Total stockholders' equity: \[tex]$10,000 + \$[/tex]7,500 = \[tex]$17,500 2. Additions: - Net income added to retained earnings: \$[/tex]7,800

3. Subtractions:
- Dividends paid subtracted from retained earnings: \[tex]$2,500 4. Changes in Common Stock: - Additional common stock issued: \$[/tex]7,300
- Ending common stock: \[tex]$10,000 (beginning) + \$[/tex]7,300 (additional) = \[tex]$17,300 5. Ending Balance: - Ending retained earnings: \$[/tex]7,500 (beginning) + \[tex]$7,800 (net income) - \$[/tex]2,500 (dividends) = \[tex]$12,800 - Ending common stock: \$[/tex]17,300
- Total stockholders' equity: \[tex]$17,300 (common stock) + \$[/tex]12,800 (retained earnings) = \[tex]$30,100 Thus, the statement of stockholders' equity at the end of the year will have ending balances of \$[/tex]17,300 in common stock, \[tex]$12,800 in retained earnings, and a total stockholders' equity of \$[/tex]30,100.