Question

Required information Problem 11-4A Analysis of changes in stockholders' equity accounts LO C3, P2, P3 [The following information applies to the questions displayed below.] The equity sections from Atticus Group’s 2016 and 2017 year-end balance sheets follow. Stockholders’ Equity (December 31, 2016) Common stock—$6 par value, 100,000 shares authorized, 30,000 shares issued and outstanding $ 180,000 Paid-in capital in excess of par value, common stock 140,000 Retained earnings 340,000 Total stockholders’ equity $ 660,000 Stockholders’ Equity (December 31, 2017) Common stock—$6 par value, 100,000 shares authorized, 35,000 shares issued, 5,000 shares in treasury $ 210,000 Paid-in capital in excess of par value, common stock 160,000 Retained earnings ($40,000 restricted by treasury stock) 400,000 770,000 Less cost of treasury stock (40,000 ) Total stockholders’ equity $ 730,000 The following transactions and events affected its equity during year 2017. 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. Problem 11-4A Part 5 5. How much net income did the company earn during year 2017?

Answer 1

Solution:-

1. How many common shares are outstanding on each cash dividend date:-

	Jan 5	Apr 5	July 5	Oct. 5
Beginning balance	30,000	30,000	30,000	30,000
Less treasury stock (mar.20)		(5,000)	(5,000)	(5,000)
Plus dividend share (July 31) (25,000 * 20%)				5000
Outstanding share	30,000	25,000	25,000	30000

2. What is the total dollar amount for each of the four cash dividends:-

	Jan 5	Apr 5	July 5	Oct. 5
Outstanding shares	30,000	25,000	25,000	30,000
Dividend per share	0.60	0.60	0.60	0.60
Total dividend	18,000	15,000	15,000	18000

3. What is the amount of the capitalization of retained earnings for the stock dividend:-

Number of shares	5000
Market value per share	10
Total capitalization	50,000

4. What is the per share cost of the treasury stock purchased:-

Total amount paid	40,000
Shares purchased	5,000
Cost per share	8.00

5. How much net income did the company earn during year 2017:-

Net income

$ 209,500

Explanation:-

Retained earning begnning balance	340,000
Less dividends
Jan. 5	18,000
Apr. 5	15,000
July 5	15,000
July 31	50,000
Oct. 5	18,000
Total before net income	224000
Plus net income	176000
Retained earnings	400,000

Therefore net income = 176000