Financial & Managerial Accounting
Financial & Managerial Accounting
18th Edition
ISBN: 9781260006520
Author: williams
Publisher: MCG
Question
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Chapter 12, Problem 4AP
To determine

Compute the stockholders’ equity, number of common shares outstanding, and book value per share after each of the successive transactions.

Expert Solution & Answer
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Explanation of Solution

Stockholders’ equity: It refers to the amount of capital that includes the amount of investment by the stockholders, earnings generated from the normal business operations, and less any dividends paid to the stockholders.

Common stock: Common stock is the cash raised by the company by issuing common or ordinary shares to the stockholders. This is an investment for the shareholders for which they receive the dividends from the issuing company, and have voting rights.

Book value per share: This is a financial ratio which measures the value of shareholders’ equity available per common share.

Formula for book value per common share:

Book value per common share} = Shareholders’ equity applicable to common sharesNumber of common shares 

Compute the stockholders’ equity, number of common shares outstanding, and book value per share after each of the successive transactions.

TransactionStockholders’ Equity ($)Number of Common SharesBook Value Per Share ($)
Beginning balance$840,00040,000$21.00
January 102,000
Balance840,00042,00020.00
March 15(42,000)(2,000)
Balance798,00040,00019.95
May 3063,0002,000
Balance861,00042,00020.50
July 3142,000
Balance861,00084,00010.25
December 15(92,400)
Balance768,60084,0009.15
December 31525,000
Balance$1,293,60084,000 shares$15.40

Table (1)

Working Notes:

Compute the number of stock dividend shares distributed on January 10.

Stock dividends shares = {Number of shares outstanding × Stock dividend percentage}= 40,000 shares × 5%= 2,000 shares

Compute the book value per share after the January 10 transaction.

Book value per common share} = Shareholders’ equity applicable to common sharesNumber of common shares =$840,00042,000 shares=$21.00

Compute the reduction in stockholders’ equity due to buy back of shares as treasury stock on March 15.

Treasury stock={Number of common shares bought back×Cost per share}=2,000 shares×$12 per share=$42,000

Compute the book value per share after the March 15 transaction.

Book value per common share} = Shareholders’ equity applicable to common sharesNumber of common shares =$798,00040,000 shares=$19.95

Compute the increase in stockholders’ equity due to sale of buy back of shares as treasury stock on May 30.

Paid-in capital ={Number of common shares bought back×Sale price per share}=2,000 shares×$31.50 per share=$63,000

Compute the book value per share after the May 30 transaction.

Book value per common share} = Shareholders’ equity applicable to common sharesNumber of common shares =$861,00042,000 shares=$20.50

Compute the number of shares after stock split on July 31.

Total number of shares after stock-split} = (Total number of shares outstanding × Stock split)= 42,000 shares × 21= 84,000 shares

Compute the book value per share after the July 31 transaction.

Book value per common share} = Shareholders’ equity applicable to common sharesNumber of common shares =$861,00084,000 shares=$10.25

Compute the decrease in stockholders’ equity due to declaration of cash dividends on December 15.

Dividends={Number of shares outstanding on December 15×Dividend per share}=84,000 shares×$1.10 per share=$92,400

Compute the book value per share after the December 15 transaction.

Book value per common share} = Shareholders’ equity applicable to common sharesNumber of common shares =$768,60084,000 shares=$9.15

Compute the book value per share after the December 31 transaction.

Book value per common share} = Shareholders’ equity applicable to common sharesNumber of common shares =$1,293,60084,000 shares=$15.40

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Chapter 12 Solutions

Financial & Managerial Accounting

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