The financial statements for Wesley Corp. included the following selected financ

Question

The financial statements for Wesley Corp. included the following selected financial information from the stockholders’ equity section of the balance sheet at the end of YEAR 1:

Common Stock, $.05 par value: $400,000
Additional Paid-in-Capital in excess of par: $71,600,000
Retained Earnings: $4,800,000

1.How many shares of common stock were issued during the year? Show your work.
2.Assume that all the stock was sold during the year. Prepare the journal entry to record the sale.
3.In year 2 assume the company had no additional sales of common stock.The company purchased 10,000 shares of their own common stock for $15 per share. Record the journal entry to record this purchase.
4.Assume the company declared and paid dividends of $500,000 during year 2. What was the amount of net income earned in year 2?
5.What is the amount of earnings per share in year 2?

Explanation / Answer

1 Par Value per share $0.05 Total par value $400,000 Total Issued Shares = Total Par Value / Par value per Share = 400000 / 0.05 Issued Shares = 8000000 2 Cash $72,000,000     To Common Stock $400,000     To Paid in capital in Excess of par $71,600,000 (To record Stock issue and excess of par ) 3 Common Stock(0.05*10000) 500 Paid in capital in excess of par(14.95 * 10000) 149500        To Cash 150000 (To buy back the shares) 4 Net income should be more than $500,000 5 Assumed Profit = $500,000 Shares Outstanding Second Year = Issued Shares - Buy Back Shares = 8000000 - 10000 = 7990000 Earnings Per Share = Total Income / Outstanding Shares = 500000 / 7990000 = $0.06258 Assumption: There is no clue (or) hint to calculate second year profit, genarally devidends are paid from the current year profits thats why i assumed this dividends amount as second year profit. Thank you.... 1 Par Value per share $0.05 Total par value $400,000 Total Issued Shares = Total Par Value / Par value per Share = 400000 / 0.05 Issued Shares = 8000000 2 Cash $72,000,000     To Common Stock $400,000     To Paid in capital in Excess of par $71,600,000 (To record Stock issue and excess of par ) 3 Common Stock(0.05*10000) 500 Paid in capital in excess of par(14.95 * 10000) 149500        To Cash 150000 (To buy back the shares) 4 Net income should be more than $500,000 5 Assumed Profit = $500,000 Shares Outstanding Second Year = Issued Shares - Buy Back Shares = 8000000 - 10000 = 7990000 Earnings Per Share = Total Income / Outstanding Shares = 500000 / 7990000 = $0.06258

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