Question

1) and end of the you The equity sections for Hovo Corp, at the beginning of the year (January 1) and en (December 31) follow. Problem 13-4B Analyzing changes in stockholders' equity accounts C3 P2 P3 Stockholders' Equity (January 1) Common stock-$20 par value, 30,000 shares authorized, 17,000 shares issued and outstanding....... Peld-in capital in excess of per value, common stock Retained earnings..... Total stockholders' equity.... $340,000 60.000 220.00 56700 Stockholders' Equity (December 31) Common stock-$20 par value, 30,000 shares authorized, 19.000 shares issued, 1,000 shares in treasury...... Pald.in capital in excess of par value, common stock .. Retained earnings ($40,000 restricted by treasury stock)..... $380,000 10400 255200 Less cost of treasury stock......... Total stockholders' equity.... $799 200 The following transactions and events affected its equity during the year. Feb. 15 Declared a $0.40 per share cash dividend, date of record five days later. Mar. 2 Purchased treasury stock for cash. May 15 Declared a $0.40 per share cash dividend, date of record five days later. Aug. 15 Declared a $0,40 per share cash dividend, date of record five days later. Oct. 4 Declared a 12.5% stock dividend when the stock's market value is $42 per share. Oct. 20 Issued the stock dividend that was declared on October 4. Nov, 15 Declared a $0.40 per share cash dividend, date of record five days later. Check (3) $84,000 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 retained earnings transferred to paid-in capital accounts (capitalized) for stock dividend? 4. What is the per share cost of the treasury stock purchased? 5. How much net income did the company earn this year? (4) $40 (5) $136,000

Answer 1

Solution:

1. Common Shares outstanding on each cash dividend date
Date of Cash Dividend		Calculations		No of Shares Outstanding
					15-Feb		Shares at the beginning		17,000 shares
15-May		(17,000 - 1000) shares issued as a treasury stock		16,000 shares
					15-Aug		No Adjustments		16000 shares
15-Nov		(16,000 + 2,000) shares issued as a Stock Dividend		18,000 shares

2. Total Amount for each of the Cash Dividend
Date of Cash Dividend		Calculations		Amount $
					15-Feb		(17,000 Shares * $0.40 per share)		6,800
15-May		(16,000 Shares * $0.40 per share)		6,400
					15-Aug		(16,000 Shares * $0.40 per share)		6,400
15-Nov		(18,000 Shares * $0.40 per share)		7,200
					Total Amount for each of the Cash Dividend				26,800

3. Amount of Retained earnings transferred to Paid in Capital
Since, Stock Dividend is declared at Market Value of $42, which is in excess of par value of $20. Therefore, the amount in excess of par value should be transferred to Paid in Capital Account. The Amount is calculated as follows:
					= (No. of Outstanding shares * Rate of Dividend declared) * Amount in excess of Par Value
										=   (16,000 shares * 12.5%)* $22
					= $44,000

4. Calculation of Share per Cost of Treasury Stock
Cost of Treasury Stock per share		= Cost of Purchase / No. of Treasury shares
						= $40,000 / 1,000 shares
Cost of Treasury Stock per share		= $40 per share

5. Computation of Net Income Company Earn this year
Particulars				Amount   $
Retained Earnings at the End				295,200
Add: Cash Dividend Declared this year				26,800
Add: Stock Dividend Declared this year				84,000
				406,000
Less: Retained Earnings at the Beginning				-270,000
Net Income during the year				136,000