Robinson's has 15,000 shares of stock outstanding with a par value of $1.00 per share and a market price of $36 a share. The balance sheet shows $15,000 in the common stock account, $315,000 in the capital in excess of par account, and $189,000 in the retained earnings account. The firm just announced a 3-for-2 stock split.

What will the capital in excess of par account value be after the split?

A. $126,000

B. $210,000

C. $283,500

D. $315,000

E. $472,500

The correct answer is option (D).

Explanation:

According to the scenario, the given data are as follows:

Common stock = $15,000

Capital in excess of par account = $315,000

Retained earning = $189,000

So, we can calculate the capital in excess of par account after split are as follows:

As Split in stocks does not change value of capital in excess of par account.

Hence, The value of capital in excess of par account remains same.

So, Capital in excess of par account = $315,000

a. Income statement

Services revenue                                                      20,000

Unearned revenue                                                         800

Total Revenue                                                           20,800

Less Expenses :

Interest expense                                          500

Wages expense                                        7,500

Insurance expense                                    1,800

Utilities expense                                        1,300

Supplies expense                                        200

Depreciation expense—BuiIdings           2,000      (13,300)

Net Income                                                                  7,500

b. Statement of retained earnings for the year ended December 31

Retained earnings at the beginning of the year 14,800

Add Profit for the year                                            7,500

Less Dividends Paid                                             (3,000)

Retained earnings at the end of the year           19,300

c. Balance sheet at December 31.

Non - Current Assets

Buildings                                                 40,000

Accumulated depreciation—Buildings (15,000)

Total Non - Current Assets                    25,000

Current Assets

Supplies                                                       800

Accounts receivable                                4,000

Prepaid insurance                                    2,500

Cash                                                         10,000

Total Current Assets                               17,300

Total Assets                                             42,300

Equity and Liabilities

Equity

Common stock                                        10,000

Retained Earnings                                   19,300

Total Equity                                              29,300

Non - Current Liabilities

Notes payable                                          11,000

Total Non - Current Liabilities                 11,000

Current Liabilities

Accounts payable                                     1,500

Wages payable                                           400

Interest payable                                          100

Total Current Liabilities                           2,000

Total Equity and Liabilities                    42,300

Explanation:

The Profit for the year is included in the calculation of the Retained Earnings figure for the end of the year. The retained earnings figure at end of the year is part of Equity in the Balance Sheet.

(Note Income Statement Consist of Revenue Expenditures only, whilst Balance Sheet consists of Assets, Equity and Liabilities).