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Stock Transactions

The balance sheet of David Luza Corporation contains the following information in its equity section:

Stockholders' equity
Common stock, $10 par value, 1,000,000 shares
authorized and issued and outstanding $10,000,000
additional paid-in capital 8,000,000
retained earnings 9,500,000
Total stockholders' equity $27,500,000

a. What is the maximum number of shares of stock that the corporation could sell if the board of directors desired to do so?
b. When the corporation sold its stock, what was the average selling price per share?
c. If the board of directors declared a $1.50 per share dividend, how much cash would be required to issue the dividend?
d. If Luza has earned $9,500,000 since its formation, how much profit has the corporation distributed to stockholders in the form of dividends since its formation?
e. If the current market price of the stock is $60 per share, how much cash could the board of directors raise if it is sold all available shares?

Solution Preview

a. What is the maximum number of shares of stock that the corporation could sell if the board of directors desired to do so?

Inasmuch as the corporation is authorized to issue 1,000,000 shares and has issued all of it ($10,000,000/$10 per shares=1,000,000 shares issued), it cannot issue any additional shares without amending the corporate charter.

b. When the corporation sold its ...

Solution Summary

The balance sheet of David Luza Corporation contains the following information in its equity section:

Stockholders' equity
Common stock, $10 par value, 1,000,000 shares
authorized and issued and outstanding $10,000,000
additional paid-in capital 8,000,000
retained earnings 9,500,000
Total stockholders' equity $27,500,000

a. What is the maximum number of shares of stock that the corporation could sell if the board of directors desired to do so?
b. When the corporation sold its stock, what was the average selling price per share?
c. If the board of directors declared a $1.50 per share dividend, how much cash would be required to issue the dividend?
d. If Luza has earned $9,500,000 since its formation, how much profit has the corporation distributed to stockholders in the form of dividends since its formation?
e. If the current market price of the stock is $60 per share, how much cash could the board of directors raise if it is sold all available shares?

$2.19