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Problem 11-4A Analysis of changes in stockholders' equity accounts LO C3, P2, P3

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The equity sections from Atticus Group’s 2016 and 2017 year-end balance sheets follow.

Stockholders’ Equity (December 31, 2016)
Common stock—$5 par value, 100,000 shares authorized, 40,000 shares issued and outstanding	$	200,000
Paid-in capital in excess of par value, common stock		160,000
Retained earnings		320,000
Total stockholders’ equity	$	680,000

Stockholders’ Equity (December 31, 2017)
Common stock—$5 par value, 100,000 shares authorized, 47,000 shares issued, 5,000 shares in treasury	$	235,000
Paid-in capital in excess of par value, common stock		195,000
Retained earnings ($30,000 restricted by treasury stock)		400,000
		830,000
Less cost of treasury stock		(30,000	)
Total stockholders’ equity	$	800,000

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

Jan.		5		Declared a $0.60 per share cash dividend, date of record January 10.
Mar.		20		Purchased treasury stock for cash.
Apr.		5		Declared a $0.60 per share cash dividend, date of record April 10.
July		5		Declared a $0.60 per share cash dividend, date of record July 10.
July		31		Declared a 20% stock dividend when the stock’s market value was $10 per share.
Aug.		14		Issued the stock dividend that was declared on July 31.
Oct.		5		Declared a $0.60 per share cash dividend, date of record October 10.

Problem 11-4A Part 1

Required:

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

Jan. 5 Apr. 5 July 5 Oct. 5 Outstanding common shares

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?

Answer 1

1.

	Jan. 5	Apr. 5	July 5	Oct. 5
Outstanding common shares	40000	35000	35000	42000
		(40000 - 5000)		(1.2 x 35000)

2.

	Jan. 5	Apr. 5	July 5	Oct. 5
Cash dividend amounts	24000	21000	21000	25200
	(40000 x $0.60)	(35000 x $0.60)	(35000 x $0.60)	(42000 x $0.60)

3. Capitalization amount = 20% x 35000 x $10 = $70000

4. Cost per share = $30000/5000 = $6

5. Net income: $241200

RE(beg) + NI - Cash dividends - Stock divided = RE(end)

$320000 + NI - $91200 - $70000 = $400000

$158800 + NI = $400000

NI = $400000 - $158800 = $241200