The shareholders' equity portion of the balance sheet of Sessel's Department Stores, Inc., a large regional specialty retailer, is as follows:
Disclosures in Sessel's annual report revealed the following changes in shareholders' equity accounts for 2019 and 2018:
The only changes in retained earnings during 2019 were net income and preferred dividends of $3,388,000 on preferred stock.
The Series B preferred stock is convertible. During 2019, shares of Series B preferred stock were issued for $6,592,000, and all shares were converted into 320,000 shares of common stock. No gain or loss was recorded on the conversion.
Common shares were issued in 2019, in a public offering and upon the exercise of stock options. On the statement of shareholders' equity, Sessel's reports these two items on a single line entitled 'Issuance of shares'.
Net income: $12,126,000
Issuance of common stock: 5,580,000 shares at $112,706,000
Using the information given, prepare comparative statements of shareholders' equity for 2019 and 2018, omitting the column for number of shares outstanding. Examples of shareholders' equity statements can be found on page 246 and in Appendix B of your text.
Discuss how a current shareholder might react to the 2019 increases in shareholders' equity.
SESSH'S DEPARIMENT STORES,NC Balance Sheets Shareholders' Equity Setion (S in thousands, except per shat e amounts)Dec 31, 2019 Dec 31, 2018 shareholders' Eqty Preferred stock-$i par value; 20,000 total shares authorized; Series A-600 shares authorized, issued, and outstanding$30 per share liquidation preference $57,700 $ SeriesB -33 shares authorized, no shares outstanding Common stock-$O10 par;200,CCO shares authorized, 19,940 and 18,580 shares issued and outstandingat Dec. 31, 2019 and Dec 31, 2018, respectively Additional paid-in capital Retained earmings Total shareholders' equity 1,858 201430 44,798 $ 361,352 $ 248,086 1,994. 13,666 .