Question

Hi,

I'm somewhat confused with the calculation here:

Problem 11-4A Analyzing changes in stockholders’ equity accounts LO C3, P2, P3

[The following information applies to the questions displayed below.]

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—$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)
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 the year.

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.

Problem 11-4A Part 1

Required:
1. How many common shares are outstanding on each cash dividend date? I have the answer, I just don't quite uderstand why we multiply 37000*1.2? Where did we take 1.2 from? Is it a price for a single share? If it is, how did we get it?

	Jan. 5 Apr. 5 July 5 Oct. 5 Outstanding common shares 40,000selected answer correct 37,000selected answer correct 37,000selected answer correct 44,400

Answer 1

On July 31, there was a 20 % stock dividend declared.

There were 37,000 ( 40,000 - 3,000 ) shares issued and outstanding prior to the stock dividend.

On July 31, the number of shares of stock declared by way of dividend = 37,000 x 0.20 = 7,400.

Therefore, total number of shares issued and outstanding as on Oct 5 = 37,000 + 7,400 = 44,400