The equity sections from Sierra Group’s 2009 and 2010 year-end balance sheets fo
ID: 2434568 • Letter: T
Question
The equity sections from Sierra Group’s 2009 and 2010 year-end balance sheets follow.Stockholders’ Equity (December 31, 2009)
Common stock—$6 par value, 100,000 shares authorized, 45,000 shares issued and outstanding
$270,000
Paid-in capital in excess of par value, common stock 230,000
Retained earnings
340,000
Total stockholders’ equity
$840,000
Stockholders’ Equity (December 31, 2010)
Common stock—$6 par value, 100,000 shares authorized, 53,200 shares issued, 4,000 shares in treasury
$319,200
Paid-in capital in excess of par value, common stock
262,800
Retained earnings ($60,000 restricted by treasury stock)
400,000
982,000
Less cost of treasury stock
(60,000
)
Total stockholders’ equity
$922,000
The following transactions and events affected its equity during year 2010.
Jan. 5 Declared a $0.50 per share cash dividend, date of record January 10.
Mar. 20 Purchased treasury stock for cash.
Apr. 5 Declared a $0.50 per share cash dividend, date of record April 10.
July 5 Declared a $0.50 per share cash dividend, date of record July 10.
July 31 Declared a 20% stock dividend when the stock’s market value is $10 per share.
Aug. 14 Issued the stock dividend that was declared on July 31.
Oct. 5 Declared a $0.50 per share cash dividend, date of record October 10.
Requirement 1:
How many common shares are outstanding on each cash dividend date?
Jan. 5 Apr. 5 July 5 Oct. 5
Requirement 2:
What is the total dollar amount for each of the four cash dividends? (Omit the "$" sign in your response.)
Jan. 5 Apr. 5 July 5 Oct. 5
Requirement 3:
What is the amount of the capitalization of retained earnings for the stock dividend? (Round you answer to nearest whole dollar amount. Omit the "$" sign in your response.)
Requirement 4:
What is the per share cost of the treasury stock purchased? (Omit the "$" sign in your response.)
Requirement 5:
How much net income did the company earn during year 2010? (Round you answer to the nearest whole dollar amount. Omit the "$" sign in your response.)
Explanation / Answer
Requirement 1 Number of outstanding shares on the following Dates: January 5th -45,000 April 5th - 41,000(45,000-4,000) July 5th - 41,000 Oct 5th - 49,200 (41,000*1.2) The weighted average would however be : Jan5th - 45,000 April5th - (41,000 * 8 / 12)which is 30,750 Oct 5th - (49,200 *3/12) which is 12,300 Requirement 2 Dollar Amount of each of the dividends: Jan 5th - 22,500(45,000*0.5) April5th - 20,500(41,000*0.5) July 5th -20,500 (41,000 *0.5) Oct 5th - 24,600 (49200 *0.5) Requirement 3 Capitalization of retained Earnings for the stock Dividend 0.2 (45,000-4,000)=8,200 Requirement 4 Per Share Cost of the Treasury Stock purchased 60,000/4,000=$15 Requirement 5 Net Income for the year : ClosinRE= Opening RE+NI- Dividends Paid Hence, 400,000=340,000+ NI -(88,100 +8200) Solving the above equation,we get, NI = 156,300
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