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Chapter 11: Q4PSA (page 523)

Question:

The equity sections from Atticus Group’s 2016 and 2017 year-end balance sheets follow Stockholders’ Equity (December 31, 2016)

Common stock—\(4 par value, 100,000 shares

authorized, 40,000 shares issued and outstanding . .. . . . . . . . . . \)160,000

Paid-in capital in excess of par value, common stock .. . . . . . . . . . . . . . . . 120,000

Retained earnings .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,000

Total stockholders’ equity .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(600,000

Stockholders’ Equity (December 31, 2017)

Common stock—\)4 par value, 100,000 shares

authorized, 47,400 shares issued, 3,000 shares in treasury . .. . . . . . . \(189,600

Paid-in capital in excess of par value, common stock . . . . . .. . . . . . . . . . . . 179,200

Retained earnings (\)30,000 restricted by treasury stock) .. . . . . . . . . . . . . 400,000

768,800

Less cost of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,000)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . \(738,800

The following transactions and events affected its equity during year 2017.

Jan. 5 Declared a \)0.50 per share cash dividend, date of record January 10.

Mar. 20 Purchased treasury stock for cash.

Apr. 5 Declared a \(0.50 per share cash dividend, date of record April 10.

July 5 Declared a \)0.50 per share cash dividend, date of record July 10.

July 31 Declared a 20% stock dividend when the stock’s market value was \(12 per share.

Aug. 14 Issued the stock dividend that was declared on July 31.

Oct. 5 Declared a \)0.50 per share cash dividend, date of record October 10.

Required

1. How many common shares are outstanding on each cash dividend date?

2. What is the total dollar amount for each of the four cash dividends?

3. What is the amount of the capitalization of retained earnings for the stock dividend?

4. What is the per share cost of the treasury stock purchased?

5. How much net income did the company earn during year 2017?

Short Answer

Expert verified

Answer

  1. Given below.
  2. Dividend amount is $82,900.
  3. Capitalization of retained earnings is $88,800
  4. Per share cost of treasury stock is $10.
  5. Total net income is $251,700

Step by step solution

01

common shares are outstanding

  1. Jan.5: 40,000 Common stock—$4 par value
  2. Apr.5: 37,000 Common stock of $4 par value is outstanding as 3,000 share repurchase on March 20.
  3. Jul.5: 37,000 Common stock—$4 par value
  4. Aug.14: 44,400 Common stock $4 par value is outstanding for dividend after issuing 20% stock dividend on 37,000 stocks.
  5. Oct.5: 44,400 Common stock—$4 par value
02

Total dollar amount for each of the four cash dividends

DividendAmount=ΣNumberofStock×CashDividend=(40,000×$0.5)+(37,000×$0.5)+(44,400×$0.5)+(44,400×$0.5)=$82,900

03

amount of the capitalization of retained earnings on stock dividend:

Capitalization of retained earnings will be equal to amount of stock dividend.

CapitalizationofRetainedEarnings=NumberofStock×StockDividendRate×MarketPrice=(40,000-3,000)×20%×$12=$88,800,
04

Per share cost of the treasury stock purchased:

PerShareCostofTreasuryStock=TotalcostNumberofSharesRepurchased=$30,0003,000=$10

05

Requirement 5: Net Income for the Year

Amount

Dividend paid

$ 82,900

Adjustment on account of stock dividend

88,800

Increase in retained earnings (400,000-320,000)

80,000

Net Income

$ 251,700

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Most popular questions from this chapter


Question:

Weiss Company is incorporated at the beginning of this year and engages in a number of transactions. The following journal entries impacted its stockholders’ equity during its first year of operations.

Account and explanation

Debit

Credit

A

Cash

Common Stock, \(1 Par Value

Paid-In Capital in Excess of Par Value, Common Stock

120,000

3,000

117,00

B

Organization Expenses

Common Stock, \)1 Par Value

Paid-In Capital in Excess of Par Value, Common Stock.

40,000

1,000

39,000

C

Cash

Accounts Receivable

Building

Notes Payable

Common Stock, \(1 Par Value

Paid-In Capital in Excess of Par Value, Common Stock

13,300

8,000

37,000

18,300

800

39,200

D

Cash

Common Stock, \)1 Par Value

Paid-In Capital in Excess of Par Value, Common Stock

60,000

1,200

58,800

Required

1. Explain the transaction(s) underlying each journal entry (a) through (d).

2. How many shares of common stock are outstanding at year-end?

3. What is the amount of minimum legal capital (based on par value) at year-end?

4. What is the total paid-in capital at year-end?

5. What is the book value per share of the common stock at year-end if total paid-in capital plus retained earnings equals $ 283,000?

On October 10, the stockholders’ equity of Sherman Systems appears as follows:

Common stock—\(10 par value, 72,000 shares

authorized, issued, and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . \) 720,000

Paid-in capital in excess of par value, common stock . . . . . . . . . . . . . . 216,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 864,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(1,800,000

Prepare journal entries to record the following transactions for Sherman Systems.

a. Purchased 5,000 shares of its own common stock at \)25 per share on October 11.

b. Sold 1,000 treasury shares on November 1 for \(31 cash per share.

c. Sold all remaining treasury shares on November 25 for \)20 cash per share.

2. Explain how the company’s equity section changes after the October 11 treasury stock purchase and prepare the revised equity section of its balance sheet at that date.

What is the difference between the market value per share and the par value per share.

Who is responsible for directing a corporation’s affairs?

Question:

Alexander Corporation reports the following components of stockholders’ equity on December 31, 2016:

Common stock—\(25 par value, 50,000 shares authorized,

30,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . \) 750,000

Paid-in capital in excess of par value, common stock . . . . . . . . . . . . . . . 50,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 340,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(1,140,000

In year 2017, the following transactions affected its stockholders’ equity accounts.

Jan. 2 Purchased 3,000 shares of its own stock at \)25 cash per share.

Jan. 7 Directors declared a \(1.50 per share cash dividend payable on February 28 to the February 9 stockholders of record.

Feb. 28 Paid the dividend declared on January 7.

July 9 Sold 1,200 of its treasury shares at \)30 cash per share.

Aug. 27 Sold 1,500 of its treasury shares at \(20 cash per share.

Sep. 9 Directors declared a \)2 per share cash dividend payable on October 22 to the September 23 stockholders of record.

Oct. 22 Paid the dividend declared on September 9.

Dec. 31 Closed the $52,000 credit balance (from net income) in the Income Summary account to Retained Earnings.

Required

1. Prepare journal entries to record each of these transactions for 2017.

2. Prepare a statement of retained earnings for the year ended December 31, 2017.

3. Prepare the stockholders’ equity section of the company’s balance sheet as of December 31, 2017.
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