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    Analysis of changes in stockholders' equity accounts

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    Stockholders' Equity (December 31, 2002)
    Common Stock - $4 par value, 50,000 shares authorized, 20,000 shares issued and outstanding

    $80,000
    Contributed capital in excess of par value, common stock
    $60,000
    Total contributed capital
    $140,000
    Retained Earnings
    $160,000
    Total Stockholders' Equity
    $300,000

    Stockholders' Equity (December 31, 2003)
    Common Stock - $4 par value, 50,000 shares authorized,23,700 shares issued,1,500 shares in treasury

    $94,800
    Contributed capital in excess of par value, common stock
    $89,600
    Total contributed capital
    $184,400
    Retained Earnings ($57,200 restricted by Treasury Stock)
    $200,000 = 384,400
    Less Treasury Stock at Cost
    (15,000)
    Total Stockholders' Equity
    $369,400

    The following transactions and events affect its equity accounts during year 2003:

    Feb. 15 Declared a $0.50 per share cash dividend, date of record February 20.
    Mar. 2 Purchased treasury stock for cash.
    May 15 Declared a $0.50 per share cash dividend, date of record May 20.
    Aug. 15 Declared a $0.50 per share cash dividend, date of record August 20.
    Oct.4 Declared a 20% stock dividend when the stock's market value is $12 per share.
    Oct. 20 Issued a stock dividend that was declared on October 4.
    Nov. 15 Declared a $0.50 per share cash dividend, date of record November 20.

    Required:

    1. How many common shares are outstanding on each cash dividend date?
    *To find this, do I need to subtract the issued stock by the treasury stock
    2. What is the total dollar amount for each of the four cash dividends?
    *Honestly, I don't understand.
    3. What is the amount of the capitalization of retained earnings for the stock dividend?
    *The teacher got an answer of $44,400. I have know idea how and could you explain what it means by capitalization.
    4. What is the per share cost of the treasury stock purchased?
    *I have know idea how she got answer of $10 per share either.
    5. How much net income did the company earn during year 2003?
    *Did she get an answer of $124,000 by simply subtracting beginning retained earnings by the end retained earnings and adding the dividends.

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    Solution Preview

    Question 1
    In computing for the outstanding stocks for each of the cash and stock dividend dates, subtract the number of common stocks currently in treasury from the number of stocks issued.

    Question 2
    To compute for this, you have to multiply the number you got in Question 1 by the declared per share cash dividend. For example, for the Feb 15 cash dividend, there are 20,000 outstanding stocks multiplied by $0.50 to get $10,000 total dollar amount of the cash dividend for that period.

    Note ...

    Solution Summary

    The solution provides an analysis of changes in stockholders' equity accounts.

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