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

Required:
Prepare the statement of stockholders' equity at the end of the year (December 31).

\[
\begin{array}{|l|c|c|c|}
\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 additional common stock} & \[tex]$7,300 & & \$[/tex]7,300 \\
\hline
\text{Net income} & & \[tex]$7,800 & \$[/tex]7,800 \\
\hline
\text{Dividends paid} & & (\[tex]$2,500) & (\$[/tex]2,500) \\
\hline
\text{Ending balance} & \[tex]$17,300 & \$[/tex]12,800 & \$30,100 \\
\hline
\end{array}
\]



Answer :

GinnyAnswer
To prepare the statement of stockholders' equity for Cowpoke Drilling for the year ended December 31, we need to account for the changes in common stock and retained earnings during the year. Here is the detailed, step-by-step solution:

1. Beginning Balances:
- Common Stock: [tex]$10,000 - Retained Earnings: $[/tex]7,500

2. Net Income and Dividends:
- Net Income for the year: [tex]$7,800 - Dividends paid: $[/tex]2,500

3. Additional Common Stock:
- Additional Common Stock issued: [tex]$7,300 4. Calculate the Ending Balance of Retained Earnings: \[ \text{Retained Earnings at End} = \text{Retained Earnings at Begin} + \text{Net Income} - \text{Dividends} \] \[ \text{Retained Earnings at End} = \$[/tex]7,500 + \[tex]$7,800 - \$[/tex]2,500 = \[tex]$12,800 \] 5. Calculate the Ending Balance of Common Stock: \[ \text{Common Stock at End} = \text{Common Stock at Begin} + \text{Additional Common Stock} \] \[ \text{Common Stock at End} = \$[/tex]10,000 + \[tex]$7,300 = \$[/tex]17,300
\]

6. Calculate the Total Stockholders' Equity at the End of the Year:
[tex]\[ \text{Total Stockholders' Equity at End} = \text{Common Stock at End} + \text{Retained Earnings at End} \][/tex]
[tex]\[ \text{Total Stockholders' Equity at End} = \$17,300 + \$12,800 = \$30,100 \][/tex]

Now, we can present this information in the statement of stockholders' equity format:

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

This table summarizes all changes in stockholders' equity for Cowpoke Drilling during the year and shows the ending balances for common stock, retained earnings, and the total stockholders' equity as of December 31.

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