Question

The equity sections for Hovo Corp. at the beginning of the year (January 1) and end of the year (December 31) follow. Stockholders' Equity (January 1) Common stock-$20 par value, 30,000 shares authorized, 17.000 shares issued and outstanding.. Pald-in capital in excess of par value, common stock Retained earnings...... Total stockholders' equity $340,000 60,000 270,000 $670,000 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). $380,000 104,000 295,200 779,200 (40,000) $739,200 Less cost of treasury stock. Total stockholders' equity 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. 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 the 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?

Answer 1

Req 1 & 2

	Feb 15	May 15	Aug 15	Nov 15
Beginning balance	17,000	17,000	17,000	17,000
Less: Treasury stock		(1,000)	(1,000)	(1,000)
Add: Stock dividend				2,000
Ending balance	17,000	16,000	16,000	18,000
Cash dividend	0.4	0.4	0.4	0.4
Amount of cash dividend	6,800	6,400	6,400	7,200

Req 3

Number of shares outstanding	16,000
Rate of stock dividend	12.5%
Number of stock issued	2,000
Market price per share	42
Amount of Capitalized stock dividend	84,000

Req 4

= 40,000 / 1,000 = $ 40

Req 5

Stock dividend declared	84,000
Cash dividend paid	26,800
Increase in retained earnings	25,200
Net income earned	136,000