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KMirgAZ
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Pugh Co. reported the following in its statement of stockholders' equity on January 1, 1990:
Common stock, $5 par value, authorized 200,000 shares, issued 100,000 shares $ 500,000
Additional paid-in capital 1,500,000
Retained earnings 516,000
2,516,000
Less treasury stock, at cost, 5,000 shares (40,000)
Total stockholders' equity $2,476,000
The following events occurred in 1990:
May 1 - 1,000 shares of treasury stock were sold for $10,000.
July 9 - 10,000 shares of previously unused common stock were sold for $12 per share.
October 1 - The distribution of a 2-for-1 stock split resulted in the common stock's per share par value being
halved.
Pugh accounts for treasury stock under the cost method. Laws in the state of Pugh's incorporation protect shares
held in treasury from dilution when stock dividends or stock splits are declared.
In Pugh's December 31, 1990, statement of stockholders' equity, the par value of the issued common stock
should be:
Becker says that the answer is $550,000 because at YE there are 220,000 shares outstanding at a par value of 2.50/sh. I for the life of me can't get to these numbers. Anybody willing to explain? Thanks!
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CanadianCPA
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| Posted: 29 Jun 2010 at 22:54 | IP Logged
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Kevin, How does this sound?
Beginning of the Year( Jan 1, 1990) Common Stock = $5 par x 100,000 shares outstanding = $550,000
Issuance of 10,000 shares of Common stock = $5 par x 10,000 = $50,000
So now we have a total of 110,000 shares of Common stock outstanding at a par value of $5/share for a total of $550,000.
Next we have a stock split which results in the par value being halved. So now its 110,000 x 2 = 220,000 shares outstanding and since the par value is halved its 220,000 sh x $2.50 which equals $550,000.
Seems like alot of distractor information in this question.
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KMirgAZ
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| Posted: 29 Jun 2010 at 23:10 | IP Logged
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CanadianCPA wrote:
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Kevin, How does this sound?
Beginning of the Year( Jan 1, 1990) Common Stock = $5 par x 100,000 shares outstanding = $550,000
Issuance of 10,000 shares of Common stock = $5 par x 10,000 = $50,000
So now we have a total of 110,000 shares of Common stock outstanding at a par value of $5/share for a total of $550,000.
Next we have a stock split which results in the par value being halved. So now its 110,000 x 2 = 220,000 shares outstanding and since the par value is halved its 220,000 sh x $2.50 which equals $550,000.
Seems like alot of distractor information in this question.
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Thanks! After nearly 8 hours of studying today I'm starting to lose it. Thanks for pointing that out for me. I got caught up in all the distractor information.
One additional questions though, what about the shares from treasury that were sold. I thought those would be removed from treasury and be included with the shares outstanding? Maybe I'm confusing this with the WACSO calculation.
Thanks again!
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CanadianCPA
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| Posted: 29 Jun 2010 at 23:42 | IP Logged
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I can't completely answer that question with confidence, however you have to look at the call of the question. The question asks for:
In Pugh's December 31, 1990, statement of stockholders' equity, the par value of the issued common stock should be:
So looking at what the question is asking, they want to know about the issued common stock. The treasury stock would fall under its own category. WACSO would only be involved when your calculating EPS, so not applicable in this situation.
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KMirgAZ
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| Posted: 30 Jun 2010 at 14:40 | IP Logged
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Ok, I understand this now. I was pretty tired last night when looking at this and it just didn't make sense. Thanks for taking the time to look at this!
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Kevin
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Topic: Par value of issued common stock
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