Comprehensive Exercise: Stockholders’ Equity
Swan and Duboner Corporation has the following stockholders’ equity on December 31, 1999:
|
Six percent preferred stock: $100 par value, 20,000 shares |
|
|
authorized, 5,000 shares issued and outstanding |
$ 500,000 |
|
Common stock: $5 par value, 1,000,000 shares |
|
|
authorized, 250,000 shares issued |
1,250,000 |
|
Additional paid in capital |
1,740,000 |
|
Total contributed capital |
$3,490,000 |
|
Retained earnings |
850,000 |
|
Total stockholders’ equity |
$4,340,000 |
The corporation had the following transactions during 2000:
1. February 1: Declared a dividend of $6 per share on the preferred stock, and $0.50 per share on the common stock.
2. February 10: The board of directors established this as the record date.
3. February 25: The dividends were paid.
4. March 31: A two for one stock split on the common stock was declared and issued.
5. April 30: The Corporation bought back 100,000 shares of its common stock for $6 per share. These shares will be reissued in the future.
6. June 30: Employee stock options were granted for 10,000 shares. The current market price is $5.50 per share. The exercise price is $6.00 per share.
7. August 15: The corporation sold 20,000 shares of its treasury stock for $7.00 per share.
8. October 31: Employees exercised their stock options. The current market price is $7.50 per share.
9. December 31: The net income for the year is $600,000.
Required
a. Set up an accounting equation and record the above transactions.
b. Calculate EPS, assuming a weighted average of 380,000 common shares outstanding.
c. Why do companies, in general, declare and issue a stock split?