Question

On November 1 of Year 5, you were hired as the treasurer for Raybun Processing. Part of your job duties include maintaining accurate records of the company's stockholders and issuing dividend payments. The Board of Directors declared a dividend of $2 per share on December 1 for all stockholders of record on December 15. The dividend is paid on December 31. Examine the following pie charts to understand the company's five-year history of stock and answer the following questions. ear 3 Authortzed Number of Shares Vear Authortzed Number of Shares Year 2 Authortzed Number of Shares 400,000 Unissued Unissued Unissued x Outstanding Outstanding коо.000 Outstanding вTreasury 1.000,000 Treasury Treasury Year Authorised Number of Shares ear5 Authorized Number of Shares s0,000 50,000 Unissued 350,000 Unissued s00,000 450.000 Outstanding Outstanding 600,000 Treasury Treaury

Answer 1

Required 1: Company authorized to issue 1,000,000 number of shares.

Required 2: Company issued 400,000 shares, equivalent value reflects under Common Stock or Equity account.

Thus, Issued and Outstanding shares as at year 2 end = 400,000 shares out of authorized shares of 1,000,000 shares.

Required 3: Image not clear. But Treasury stock denotes company purchase its own share for various reasons like need of liquid cash or market value of shares fallen down and expected to rise in near future. In this way, company can raise additional capital.

Issued shares = 400,000 shares

Treasury stock = balance showing under "Green colored" tab (Image not clear; but based on year 4 figures, I guess as 100,000 shares)

Outstanding shares = Issued shares <minus> Treasury stock shares

Required 4: Company resell its Treasury stock shares and the same gets added to Outstanding shares.

Issued shares = 400,000 shares

Treasury stock = 50,000 shares

Outstanding shares = 400,000 minus 50,000 = 350,000 shares

Required 5: Authorized number of shares doesn't change irrespective of the issued or outstanding or treasury stock shares. Because it denotes the threshold limit or cap up to which company can issue shares and raise capital. Thus, it remains same as 1,000,000 shares throughout all 5 years.

Required 6:
Dividend Payable = Outstanding shares as of Dec 01 * Dividend per share

Please note that Dividend not applicable on unissued shares and also not on all issued shares, if there is Treasury stock. As said earlier, Treasury stock denotes shares holding by company on its own and hence not applicable for dividend computation. If there is no "treasury stock", then issued shares and outstanding shares mean one and the same.

Outstanding shares as of Dec 01 = 450,000 shares.

Thus Dividend = 450,000 * $ 2 per share = $ 900,000

Journal Entries are as below:

December 01 -

No journal entry required, because Dividend is declared on this date and not recorded.

December 15 -

Dr. Dividend Expense 900,000

Cr. Dividend Payable 900,000

(To record Dividend payable)

December 31 -

Dr. Dividend Payable 900,000

Cr. Cash 900,000

(To record payment of Dividend)