Chapter 11, Problem 4PSB

1.

To determine

The number of common shares outstanding on each cash dividend date.

Answer to Problem 4PSB

Solution:

Calculate the number of common shares outstanding on each cash dividend date as below.

Explanation of Solution

Required formula:

Issued shares are 17,000.

Treasury shares are 0.

Calculate the number of common shares outstanding as on January 5.

$\begin{array}{c}\text{Number}\text{of}\text{outstanding}\text{shares}=17,000-0\\ =17,000\end{array}$

Hence, the number of shares outstanding as on January 5 is 17,000.

Issued shares are 17,000.

Treasury shares are 1,000.

Calculate the number of common shares outstanding as on April 5.

$\begin{array}{c}\text{Number}\text{of}\text{outstanding}\text{shares}=17,000-1,000\\ =16,000\end{array}$

Hence, the number of shares outstanding as on April 5 is 16,000.

Issued shares are 17,000.

Treasury shares are 1,000.

Calculate the number of common shares outstanding as on August 5.

$\begin{array}{c}\text{Number}\text{of}\text{outstanding}\text{shares}=17,000-1,000\\ =16,000\end{array}$

Hence, the number of common shares outstanding as on August 5 is 16,000.

Issued shares are 19,000.

Treasury shares are 1,000.

Calculate the number of common shares outstanding as on November 5.

$\begin{array}{c}\text{Number}\text{of}\text{outstanding}\text{shares}=19,000-1,000\\ =18,000\end{array}$

Hence, the number of common shares outstanding as on November 5 is 18,000.

Conclusion

Hence, the number of common shares outstanding on each cash dividend date is determined as above.

2.

To determine

The total dollar amount for each of the four cash dividends.

Answer to Problem 4PSB

Solution:

Calculate the total dollar amount for each of the four cash dividends as shown below.

Explanation of Solution

Required formula:

$\text{Total}\text{amount}\text{of}\text{cash}\text{dividend}=\left(\begin{array}{l}\text{Number}\text{of}\text{outstanding}\text{shares }\\ \times \text{Cash}\text{dividend}\text{per}\text{share}\end{array}\right)$

Number of outstanding shares is 17,000.

Cash dividend per share is $0.40

Calculate the total dollar amount for the dividend as on February 15.

$\begin{array}{c}\text{Total}\text{amount}\text{of}\text{cash}\text{dividend}=17,000\times \$0.40\\ =\$6,800\end{array}$

Hence, total dollar amount for the dividend as on February 15 is $6,800.

Number of outstanding shares is 16,000.

Cash dividend per share is $0.40

Calculate the total dollar amount for the dividend as on May 15.

$\begin{array}{c}\text{Total}\text{amount}\text{of}\text{cash}\text{dividend}=16,000\times \$0.40\\ =\$6,400\end{array}$

Hence, total dollar amount for the dividend as on May 15 is $6,400.

Number of outstanding shares is 16,000.

Cash dividend per share is $0.40

Calculate the total dollar amount for the dividend as on August 15.

$\begin{array}{c}\text{Total}\text{amount}\text{of}\text{cash}\text{dividend}=16,000\times \$0.40\\ =\$6,400\end{array}$

Hence, the total dollar amount for the dividend as on August 15 is $6,400.

Number of outstanding shares is 18,000.

Cash dividend per share is $0.40

Calculate the total dollar amount for the dividend as on November 15.

$\begin{array}{c}\text{Total}\text{amount}\text{of}\text{cash}\text{dividend}=18,000\times \$0.40\\ =\$7,200\end{array}$

Hence, the total dollar amount for the dividend as on November 15 is $7,200.

3.

To determine

To explain:

The amount of capitalization of retained earnings for the stock dividend.

Answer to Problem 4PSB

Solution:

The amount of capitalization of retained earnings for the stock dividend refers to that amount which is utilized from the retained earnings account to issue common stock account. This amount is $84,000.

Explanation of Solution

Calculate the amount of capitalization.

$\begin{array}{c}\text{Number}\text{of}\text{shares}\text{issued}=\text{Number}\text{of}\text{outsanding}\text{shares}\times \text{Stock}\text{dividend}\\ =16,000\times \frac{12.5}{100}\\ =2,000\end{array}$

$\begin{array}{c}\text{Total}\text{amount}\text{capitalized}=\text{Number}\text{of}\text{shares}\text{issued}\times \text{Share}\text{price}\\ =2,000\times \$42\\ =\$84,000\end{array}$

Hence, the total amount of capitalization is $84,000.

Conclusion

Hence, amount of capitalization of retained earnings for the stock dividend is $84,000.

4.

To determine

To compute:

The per share cost of the treasury stock purchased.

Answer to Problem 4PSB

Solution:

The per share cost of the treasury stock purchased is $40.

Explanation of Solution

Cost of treasury stock is $40,000.

Number of shares in treasury stock is 1,000.

Calculate the per share cost of the treasury stock as shown below.

$\begin{array}{c}\text{Per}\text{share}\text{cost}\text{of}\text{the}\text{treasury}\text{stock}=\frac{\text{Cost}\text{of}\text{treasury}\text{stock}}{\text{Number}\text{of}\text{shares}\text{in}\text{treasury}\text{stock}}\\ =\frac{\$40,000}{1,000}\\ =\$40\end{array}$

Hence, the per share cost of treasury stock is $40.

Conclusion

Hence, the per share cost of the treasury stock purchased is $40.

5.

To determine

To compute:

The net income earned by the company during the year 2016.

Answer to Problem 4PSB

Solution:

The net income earned by the company during the year 2016 is $136,000.

Explanation of Solution

Calculate the net income earned as shown below.

$\begin{array}{c}\text{Net}\text{income}=\left(\begin{array}{l}\text{Closing}\text{balance}\text{of}\text{retained}\text{earnings }\\ -\text{Opening}\text{balance}\text{of}\text{retained}\text{earnings }\\ +\text{Dividends}\text{paid}\text{during}\text{the}\text{year}\end{array}\right)\\ =\$295,200-\$270,000+\$110,800\\ =\$136,000\end{array}$

Hence, the net income is $136,000.

Conclusion

Hence, the net income earned by the company during the year 2016 is $136,000.