Question

Required information [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-$5 par value, 100,000 shares authorized, 40,000 shares issued and outstanding Paid-in capital in excess of par value, common stock Retained earnings Total stockholders' equity $ 200,000 160,000 340,000 $700,000 Stockholders' Equity (December 31) Common stock-$5 par value, 100,000 shares authorized, 47,200 shares issued, 4,000 shares in treasury Paid-in capital in excess of par value, common stock Retained earnings ($40,000 restricted by treasury stock) $236,000 196,000 420,000 852,000 (40,000) $812,000 Less cost of treasury stock Total stockholders' equity The following transactions and events affected its equity during the year. 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.

Answer 1

1.

	Jan. 5	Apr. 5	July 5	Oct. 5
Outstanding common shares	40000	36000	36000	43200
		(40000 - 4000)		(1.2 x 36000)

2.

	Jan. 5	Apr. 5	July 5	Oct. 5
Cash dividend amounts	24000	21600	21600	25920
	(40000 x $0.60)	(36000 x $0.60)	(36000 x $0.60)	(43200 x $0.60)

3. Capitalization amount = 20% x 36000 x $10 = $72000

4. Cost per share = $40000/4000 = $10

5. Net income: $245120

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

$340000 + NI - $93120 - $72000 = $420000

$174880 + NI = $420000

NI = $420000 - $174880 = 245120