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)
__________________________________
Retained Earning at the end:::$460,000
____________________________________
Dividends Calculation:
Jan issued:60,000 Shares
Feb issued:40,000 Shares
Less:
Purcahsed:20,000 Shares
_____________________________
Issued shares:::::80,000
___________________________
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
_____________________________________________
Total Stock holder's Equity::::::::::::::::::::::::::$2,350,000
____________________________________________
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
___________________________________________________________________________________
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.
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