The Torre Company has the following balances in stockholders equity on December

Question

           The Torre Company has the following balances in stockholders equity on December 31st.

Common Stock - $5.00 par, 60,000 issued       $300,000

Additional paid in capital - common                600,000

Preferred stock - $100 par, 5,000 issued                      500,000

Additional paid in capital - preferred                100,000

Retained earnings                                             200,000

Treasury stock (cost - $12.00 per share)                          60,000

Answer the following questions:

1. How many shares of treasury stock are owned?

2. What was the average market price per share at which common stock was issued?

3. What was the average market price per share at which preferred stock was issued?

4. What is the total value of the Paid in Capital portion of stockholders equity?

5. What is the total value of stockholders equity?

6. How many shares of common stock are outstanding?

7. If net income for the year was $75,000 and a preferred stock dividend of $20,000 was paid,   

    what was the beginning value of retained earnings? How much is earnings per share for

    the year?

Explanation / Answer

1. How many shares of treasury stock are owned?

60,000 / 12 = 5,000 shares

2. What was the average market price per share at which common stock was issued?

(300,000 + 600,000) / 60,000 = $15/ share

3. What was the average market price per share at which preferred stock was issued?

(500,000 + 100,000) / 5,000 = $120/share

4. What is the total value of the Paid in Capital portion of stockholders equity?

600,000 + 100,000 = 700,000

5. What is the total value of stockholders equity?

300,000 + 600,000 + 600,000 + 100,000 + 200,000 + 60,000 = 1,760,000

6. How many shares of common stock are outstanding?

60,000 - 5,000 = 55,000 shares

7. If net income for the year was $75,000 and a preferred stock dividend of $20,000 was paid,   

    what was the beginning value of retained earnings? How much is earnings per share for

    the year?

Beginning value of retained earnings = 200,000 + 20,000 - 75,000 = 145,000

Earnings per share = (75,000 - 20,000) / 55,000 = $1 per share ( EPS is excluded dividends paid to preferred stockholders and only counted oustanding common stock)

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