1.
Financial statement analysis:
Company and its users use financial analysis as a way to analyse the company’s financial statements to take investment and business decisions. Some of the common financial analysis techniques include ratio analysis, vertical analysis, horizontal analysis, time series analysis etc.
Outstanding common shares on each cash dividend date.
1.
Explanation of Solution
| Date | No. of outstanding shares |
| Jan 5 | 40,000 shares |
| Apr 5 | 37,000 shares |
| Jul 5 | 37,000 shares |
| Oct 5 | 44,400 shares |
Jan 5: As per the beginning data, 40,000 shares are issued and outstanding. So, outstanding shares on Jan 5 will be 40,000 and dividend will be paid on same number of shares.
Apr 5:
Jul 5: No transactions took place between Apr 5 and Jul 5. Thus, number of outstanding shares remain same.
Oct 5: 20% stock dividend was released on Aug 14. So, number of outstanding shares will increase by 20%. This means total outstanding shares would be 44,400.
2.
Financial statement analysis:
Company and its users use financial analysis as a way to analyse the company’s financial statements to take investment and business decisions. Some of the common financial analysis techniques include ratio analysis, vertical analysis, horizontal analysis, time series analysis etc.
To compute:Amount of cash dividend on each of the four dividend dates.
2.
Explanation of Solution
As computed above,
| Date | No. of outstanding shares |
| Jan 5 | 40,000 shares |
| Apr 5 | 37,000 shares |
| Jul 5 | 37,000 shares |
| Oct 5 | 44,400 shares |
Considering dividend per share, total cash dividend on each date can be computed as:
| Date | No. of outstanding shares (i) | Dividend per share (ii) | Total cash dividend[(i)*(ii)] |
| Jan 5 | 40,000 shares | $0.50 | $20,000 |
| Apr 5 | 37,000 shares | $0.50 | $18,500 |
| Jul 5 | 37,000 shares | $0.50 | $18,500 |
| Oct 5 | 44,400 shares | $0.50 | $22,200 |
3.
Financial statement analysis:
Company and its users use financial analysis as a way to analyse the company’s financial statements to take investment and business decisions. Some of the common financial analysis techniques include ratio analysis, vertical analysis, horizontal analysis, time series analysis etc.
To compute:
3.
Explanation of Solution
Stock dividend is declaring dividend of stock to existing shareholders. It has no impact on total
Given:
No. of shares outstanding, before declaring stock dividend = 37,000
Stock dividend declared = 20%
Market value of share = $12
Now, number of shares issued as stock dividend can be computed as:
Stock dividend shares = No. of shares outstanding*Stock dividend declared
Stock dividend shares = 37,000*20%
Stock dividend shares = 7,400
Amount to be transferred from retained earnings can be computed as:
Value of stock dividend = Stock dividend shares*Market value of share
Value of stock dividend = 7,400*$12
Value of stock dividend = $88,800
4.
Financial statement analysis:
Company and its users use financial analysis as a way to analyse the company’s financial statements to take investment and business decisions. Some of the common financial analysis techniques include ratio analysis, vertical analysis, horizontal analysis, time series analysis etc.
To compute:Per share cost of treasury stock.
4.
Explanation of Solution
Treasury stock is created when the company purchases its own shares from the market. It is shown as a part of issued shares but are not counted in outstanding shares as they are held by the company.
Given:
No. of shares in treasury stock = 3,000
Cost of treasury stock = $30,000
Cost per share of treasury stock can be computed as:
Cost of treasury stock, per share = Cost of treasury stock/No. of shares in treasury stock
Cost of treasury stock, per share = $30,000/3,000
Cost of treasury stock, per share = $10
5.
Financial statement analysis:
Company and its users use financial analysis as a way to analyse the company’s financial statements to take investment and business decisions. Some of the common financial analysis techniques include ratio analysis, vertical analysis, horizontal analysis, time series analysis etc.
To compute:Net income earned during the year.
5.
Explanation of Solution
Net income can be computed as:
| Particulars | $ |
| Retained earnings, closing | $400,000 |
| Less: Retained earnings, beginning | ($320,000) |
| Add: Cash dividend | $79,200 |
| Add: Stock dividend | $88,800 |
| Net income | $248,000 |
Workings:
As computed, total cash dividend can be calculated as:
| Date | Total dividend |
| Jan 5 | $20,000 |
| Apr 5 | $18,500 |
| Jul 5 | $18,500 |
| Oct 5 | $22,200 |
| $79,200 |
Also, stock dividend worth $88,800 is transferred from retained earnings to paid-in capital for stock dividend.
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Chapter 11 Solutions
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