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Analyzing Changes in Stockholders' Equity

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P2-11 Changes in stockholders' equity Listed are the equity sections of balance sheets for years 2008 and 2009 as reported by Mountain Air Ski Resorts, Inc. The overall value of stockholders' equity has risen from $2,000,000 to $7,500.000. Use the statements to discover how and why this happened.

Mountain Air Ski Resorts, Inc.
Balance Sheets (partial)
Stockholders' equity 2008 2009
Common stock ($1.00 par)
Authorized - 5,000,000 share
Outstanding - 1,500,000 share 2009 $1,500,000
- 500,000 share 2008 $ 500,000

Paid - in capital in excess of par 500,000 4,500,000
Retained earnings 1,000,000 1,500,000
Total stockholders' equity $2,000, 000 $7,500,000

The company paid total dividends of $200,000 during fiscal 2009.

a. What was Mountain Air's net income for 2009?
b. How many new shares did the corporation issue and sell during the year?
c. At what average price per share did the new stock sold during 2009 sell?
d. At what price per share did Mountain Air's original 500,000 shares sell?

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a. What was Mountain Air's net income for 2009?

The basic formula to determine a company's ending retained earnings is: Beginning Retained Earnings + Net Income - Net Loss - Dividends Issued = Ending Retained Earnings.

Beginning Retained Earnings + Net Income - Net Loss - Dividends Issued = Ending Retained Earnings.
$1,000,000 + Net Income - $0 - $200,000 = $1,500,000
$1,000,000 + Net Income - $200,000 = $1,500,000
Net Income - $200,000 = $1,500,000-$1,000,000
Net Income = ...

Solution Summary

This solution illustrates how to analyze the changes in the Stockholders' Equity section to determine things such as net income earned and the market price of stock sold.

$2.19