Question

The equity sections for Atticus Group at the beginning of the year (January 1) and end of the year (December 31) follow. Stockholders’ Equity (January 1) Common stock—$5 par value, 100,000 shares authorized, 30,000 shares issued and outstanding $ 150,000 Paid-in capital in excess of par value, common stock 110,000 Retained earnings 340,000 Total stockholders’ equity $ 600,000 Stockholders’ Equity (December 31) Common stock—$5 par value, 100,000 shares authorized, 35,000 shares issued, 5,000 shares in treasury $ 175,000 Paid-in capital in excess of par value, common stock 155,000 Retained earnings ($40,000 restricted by treasury stock) 400,000 730,000 Less cost of treasury stock (40,000 ) Total stockholders’ equity $ 690,000 The following transactions and events affected its equity during the year. Jan. 5 Declared a $0.40 per share cash dividend, date of record January 10. Mar. 20 Purchased treasury stock for cash. Apr. 5 Declared a $0.40 per share cash dividend, date of record April 10. July 5 Declared a $0.40 per share cash dividend, date of record July 10. July 31 Declared a 20% stock dividend when the stock’s market value was $14 per share. Aug. 14 Issued the stock dividend that was declared on July 31. Oct. 5 Declared a $0.40 per share cash dividend, date of record October 10. Required: 1. How many common shares are outstanding on each cash dividend date? What is the total dollar amount for each of the four cash dividends? What is the amount of retained earnings transferred to paid-in capital accounts (capitalized) for the stock dividend? What is the per share cost of the treasury stock purchased? (Round your answer to 2 decimal places.) How much net income did the company earn this year?

Answer 1

· [1]

	05-Jan	05-Apr	05-Jul	05-Oct
Outstanding Common shares	30,000	25,000	25,000	30,000
Working Notes:	Existing as beginning balance	5,000 treasury stock purchased	[ no transaction affected no. of shares	[25000 x 20% stock dividend]
	[30000-5000]	between these dates]	[25000 + 5000]

· [2]

Working		05-Jan	05-Apr	05-Jul	05-Oct
A	Outstanding Common shares	30,000	25,000	25,000	30,000
B	Dividend per share	$                                0.40	$                             0.40	$                                     0.40	$                       0.40
C = A x B	Answer: Cash Dividends amount	$                      12,000.00	$                   10,000.00	$                          10,000.00	$             12,000.00

· [3]

A	Outstanding shares on Jul 31	25,000
B	Stockdividend rate	20%
C = A x B	No. of stock to be issued as Stock Dividends	5,000
D	Market value per share	$                              14.00
E = C x D	Capitalization amount of Retained Earnings	$                      70,000.00

· [4]

A	Treasury Stock value	$                      40,000.00
B	No. of shares as Treasury Stock	5,000
C = A/B	Cost per share	$                                8.00

· [5]

Retained earnings - Ending balance	$                   400,000.00
Total Cash Dividends	$                      44,000.00
Total Stock Dividends	$                      70,000.00
Total	$                   514,000.00
Less: Retained earnings - Beginning balance	$                   340,000.00
Net Income	$                   174,000.00