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2.Frank & Co. was organized on Jan 2, 2013. The board of directors authorized 2

ID: 2487197 • Letter: 2

Question

2.Frank & Co. was organized on Jan 2, 2013. The board of directors authorized 2 authorized 250,000 shares of $5 par value common stock. During the first year, the following transactions occurred. Please f owner's equity that reflects these transactions. (You need to show and total owner's equity) EXTRA CREDIT: WHAT IS EPS AT YEAR-END? Assume we outstanding # of shares-averag of shares outstanding (3 pts) e number During Jan, issued 60,000 shares of common stock at $21 per share. In February, issued 40,000 shares at $22 per share. During March, purchased 20,000 shares of stock for the Treasury at $26 per share During October, resold 10,000 shares of the Treasury stock at $28 per share. . .Reported net income of $540,000. · At year-end, the firm issued a $1.00 cash dividend to shares outstanding.

Explanation / Answer

Statement of Retained Earning:

Particulars:::::::::::::::::::::::::::::::::::::Amount

Retained Earnings beginning ::::::::NIL

Add:

Net income :::::::::::::::::::::::::::::::::$540,000

Less:

Dividends paid:::::::::::::::::::::::::::::$80,000(80,000 *$1=$80,000)

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Retained Earning at the end:::$460,000

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Dividends Calculation:

Jan issued:60,000 Shares

Feb issued:40,000 Shares

Less:

Purcahsed:20,000 Shares

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Issued shares:::::80,000

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Statement of Owner Equity, for the year ended December 31

Particulars::::::::::::::::::::::::::::::::::::::::::::::::::::::Amount

Captial::::::::::::::::::::::::::::::::::::::::::::::::::::::::$760,000

Additional Capital:::::::::::::::::::::::::::::::::::::::$1,660,000

Add:

Retained Earning::::::::::::::::::::::::::::::::::::::::$450,000

Less:

Treasury Stock::::::::::::::::::::::::::::::::::::::::::::$520,000

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Total Stock holder's Equity::::::::::::::::::::::::::$2,350,000

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Calculation Owner Equity,

Jan=

Capital Shares=60,000 *$5=$300,000

Additional capital=60,000*16=960,000(21-5=16)

Feb shares=

Capital Shares=40,000 *$5=$200,000

Additional capital=40,000*$17=$680,000(22-5=17)

October:

Additional capital=10,000 * $2=$20,000

Total Capital=$300,000 + $200,000+ =$500,000

Additional Capital=960,000+$680,000+$20,000=$1,660,000

Treasury stock =

shares = 10,000 * $26=$260,000(purchased) + shares = 10,000 * $26=$260,000(resold)

=$520,000

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Eps = Net Income - preferred dividends / Average common stock outstanding

Eps =$540,000 -NIL / 70,000

=$7.7

Average common stock outstanding = Jan =60,000 + 80,000(december) /2=70,000

December shares

Jan =60,000 + Feb =40,000 - March 20,000 purchased =80,000, March to december 80,000 shares

because there is no new shares were issued.