Stockholders' Equity
Response to the following problem:
Raun Company had the following account titles on its December 31, 2010 trial balance:
9% cumulative convertible preferred stock, $100 par value
Premium on preferred stock
Common stock, $1 stated value
Premium on common stock
Retained earnings
The following additional information about the Raun Company was available for the year ended December 31, 2010:
1. There were 2 million shares of preferred stock authorized, of which 1 million were outstanding. All 1 million shares outstanding were issued on January 2, 2007, for $120 a share. The preferred stock is convertible into common stock on a one-for-one basis until December 31, 2016; thereafter, the preferred stock ceases to be convertible and is callable at par value by the company. No preferred stock has been converted into common stock, and there were no dividends in arrears at December 31, 2010.
2. The common stock has been issued at amounts above stated value per share since incorporation in 1992. Of the 5 million shares authorized, 3,580,000 were outstanding at January 1, 2010. The market price of the outstanding common stock has increased slowly but consistently for the last 5 years.
3. The company has an employee share option plan where certain key employees and officers may purchase shares of common stock at 100% of the market price at the date of the option grant. All options are exercisable in installments of one-third each year, commencing one year after the date of the grant, and expire if not exercised within four years of the grant date. On January 1, 2010, options for 70,000 shares were outstanding at prices ranging from $47 to $83 a share. Options for 20,000 shares were exercised at $47 to $79 a share during 2010. During 2010, no options expired and additional options for 15,000 shares were granted at $86 a share. The 65,000 options outstanding at December 31, 2010, were exercisable at $54 to $86 a share; of these, 30,000 were exercisable at that date at prices ranging from $54 to $79 a share.
4. The company also has an employee share purchase plan whereby the company pays one-half and the employee pays one-half of the market price of the stock at the date of the subscription. During 2010, employees subscribed to 60,000 shares at an average price of $87 a share. All 60,000 shares were paid for and issued late in September 2010.
5. On December 31, 2010, there was a total of 355,000 shares of common stock set aside for the granting of future share options and for future purchases under the employee share purchase plan. The only changes in the stockholders' equity for 2010 were those described previously, 2010 net income, and cash dividends paid.
Required:
Prepare the stockholders' equity section of the balance sheet of Raun Company at December 31, 2010. Substitute, where appropriate, X's for unknown dollar amounts. Use good form and provide full disclosure. Write appropriate notes as they should appear in the published financial statements.