Common stock $1.50 par, 1800 million shares issued.....................$2700
Capital in excess of par..........$8100
Retained Earnings.................$1200
Treasury stock....................$0
Total S. Equity.................$12,000
If million shares of common stock are issued for $12.50 per share, 1 million shares of treasury stock are purchased for $14 million and $30 million cash dividends are declared and paid, update the above stockholders equity section.
To update the stockholders' equity section, we need to consider the changes that occur due to the issuance of common stock, the purchase of treasury stock, and the declaration and payment of cash dividends. Let's break it down step by step:
1. ISSUANCE OF COMMON STOCK:
The question states that 1 million shares of common stock are issued for $12.50 per share. To calculate the total increase in the common stock section, multiply the number of shares by the issuance price:
1,000,000 shares x $12.50 = $12,500,000
2. TREASURY STOCK PURCHASE:
The question mentions that 1 million shares of treasury stock are purchased for $14 million. Since treasury stock is deducted from stockholders' equity, we need to subtract the treasury stock purchase amount from the total stockholders' equity:
Total Stockholders' Equity - Treasury Stock Purchase = $12,000,000 - $14,000,000 = -$2,000,000
3. CASH DIVIDENDS DECLARED AND PAID:
The question states that $30 million cash dividends are declared and paid. Dividends represent a distribution of earnings to shareholders and reduce retained earnings. Therefore, we need to subtract the dividend amount from retained earnings:
Retained Earnings - Cash Dividends = $1,200,000 - $30,000,000 = -$28,800,000
Finally, we can update the stockholders' equity section:
Common Stock: $1.50 par, 1800 million shares issued + 1 million shares issued for $12.50 per share = $2,700,000 + $12,500,000 = $15,200,000
Capital in Excess of Par: No change, since there is no new issuance of common stock
Retained Earnings: $1,200,000 - $30,000,000 = -$28,800,000
Treasury Stock: 1 million shares purchased for $14,000,000
Total Stockholders' Equity: Common Stock + Capital in Excess of Par + Retained Earnings + Treasury Stock = $15,200,000 + $8,100,000 + (-$28,800,000) + (-$14,000,000) = -$19,500,000