(5) Chapter 13 Problem

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?

A four-year bond has an 8% coupon rate and a face value of $1000. If the current price of the bond is $878.51, calculate the yield to maturity of the bond (assuming annual interest payments).

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1. To find the number of shares of treasury stock owned, divide the cost of treasury stock by the cost per share:

$60,000 / $12.00 = 5,000 shares of treasury stock owned.

2. To find the average market price per share at which common stock was issued, divide the total common stock amount by the number of common stock issued:

$300,000 / 60,000 = $5.00 average market price per share for common stock.

3. To find the average market price per share at which preferred stock was issued, divide the total preferred stock amount by the number of preferred stock issued:

$500,000 / 5,000 = $100.00 average market price per share for preferred stock.

4. To find the total value of the Paid in Capital portion of stockholders' equity, add the additional paid in capital for common stock and preferred stock together:

$600,000 + $100,000 = $700,000 total value of paid in capital.

5. To find the total value of stockholders' equity, add the common stock, additional paid in capital, preferred stock, additional paid in capital for preferred stock, and retained earnings together:

$300,000 + $600,000 + $500,000 + $100,000 + $200,000 = $1,700,000 total value of stockholders' equity.

6. To find the number of outstanding shares of common stock, subtract the number of treasury shares from the number of issued shares:

60,000 - 5,000 = 55,000 shares of common stock outstanding.

7. The beginning value of retained earnings can be calculated by subtracting the net income and preferred stock dividend from the ending retained earnings:

Beginning retained earnings = Ending retained earnings - Net income + Preferred stock dividend
Beginning retained earnings = $200,000 - $75,000 + $20,000 = $145,000

To calculate earnings per share for the year, divide the net income by the number of outstanding shares of common stock:

Earnings per share = Net income / Outstanding shares of common stock
Earnings per share = $75,000 / 55,000 = $1.36 per share.

To answer these questions, let's go through each question step by step:

1. How many shares of treasury stock are owned?
To find the number of shares of treasury stock owned, we need to know the cost of treasury stock, which is given as $12.00 per share. Then, we divide the total cost of treasury stock by its cost per share. In this case, the total cost of treasury stock is $60,000, so the number of shares owned is 60,000 / $12.00 = 5,000 shares.

2. What was the average market price per share at which common stock was issued?
To find the average market price per share at which common stock was issued, we divide the total value of common stock by the number of issued shares. Here, the total value of common stock is $300,000, and the number of issued shares is 60,000. Therefore, the average market price per share is $300,000 / 60,000 = $5.00 per share.

3. What was the average market price per share at which preferred stock was issued?
Similarly, to find the average market price per share at which preferred stock was issued, we divide the total value of preferred stock by the number of issued shares. In this case, the total value of preferred stock is $500,000, and the number of issued shares is 5,000. Hence, the average market price per share is $500,000 / 5,000 = $100.00 per share.

4. What is the total value of the Paid in Capital portion of stockholders equity?
The total value of the Paid in Capital portion of stockholders' equity can be found by summing the additional paid-in capital for common stock and preferred stock. The additional paid-in capital for common stock is $600,000, and for preferred stock is $100,000. Thus, the total value is $600,000 + $100,000 = $700,000.

5. What is the total value of stockholders' equity?
The total value of stockholders' equity is the sum of common stock, preferred stock, additional paid-in capital, and retained earnings. In this case, the common stock value is $300,000, preferred stock value is $500,000, additional paid-in capital is $700,000, and retained earnings are $200,000. Consequently, the total value of stockholders' equity is $300,000 + $500,000 + $700,000 + $200,000 = $1,700,000.

6. How many shares of common stock are outstanding?
To determine the number of shares of common stock outstanding, we need to subtract the treasury stock (i.e., 5,000 shares) from the issued shares of common stock. The issued shares of common stock are given as 60,000 shares. Therefore, the number of outstanding shares of common stock is 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?
To find the beginning value of retained earnings, we subtract the net income (i.e., $75,000) and the preferred stock dividend (i.e., $20,000) from the retained earnings balance given as $200,000. Thus, the beginning value of retained earnings is $200,000 - $75,000 - $20,000 = $105,000.

To calculate earnings per share, we divide the net income (i.e., $75,000) by the number of outstanding shares of common stock (i.e., 55,000 shares). Hence, the earnings per share for the year is $75,000 / 55,000 = $1.36 per share.