The authorized share capital of the Alfred Cake Company is 100,000 shares. The equity is currently shown in the company's books as follows:
Common Stock ($.50 par value) $40,000
Additional paid-in capital 10,000
Retained earnings 30,000
Common Equity 80,000
Treasury Stock(2,000 shares) 5,000
Net common equity $75,000
a. How many shares are issues?
The total common stock is $40,000 and the par value is$.50. The number of shares would be 40,000/.50=80,000.
b. How many shares are outstanding?
The shares that have been repurchased and shown as treasury stock are with the company and not outstanding. Outstanding shares are 40,000-2,000=38,000.
c. Explain the difference between your answers to (a) and (b).
d. How many more shares can be issued without the approval of shareholders?
e. Suppose the Alfred Cake Company issues 10,000 shares at $2 a share. Which of the above figures would be changed?
f. Suppose instead that the company bought back 5,000 shares at $5 a share. Which of the above figures would be changed?
The solution discusses how many shares are outstanding and issued.