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Dividend, Retained Earning and Share (Stock) Holders Equity Calculation

Information:

Exxen limited was incorporated in January 2004 with authorization to issue 75,000 shares of Rs. 100 par value preferred stock and 1.5 million shares of Re. 1 par value of common stock. The company issued the 50,000 preferred shares at par. 700,000 shares of common stock were issued at Rs. 15 per share. The preferred stock was issued to pay a 9% cumulative dividend and is callable at Rs. 110. From the first year of incorporation to 2008 the company earned a total profit of Rs. 8,750,000 and paid dividend of Rs. 0.60 per share each year on the common stock. In 2009, the company reported a net Profit of Rs. 1,500,000 and paid no dividends to common stock holders.

Requirements:

Prepare the stockholder’s equity section of the balance sheet from the information given above at December 31, 2009.

Solution:

Calculation 2004-2008:

Available Data of Common Stock for 2004-2008

Authorized Preferred Stocks = 1500000

Par Value = Rs. 1

700000 shares issued at Rs. 15.

Market Value = 15

As each common share value is Rs. 1 but each share sell in market at Rs. 15. We will record these share in two separate block. First common stock at par value (Rs. 1) and Additional paid in capital at Premium (Rs. 15- Rs. 1= Rs. 14).

Common stock = 700000 x 1=700000

Additional Paid in Capital (Common Stock)= 700000 x 14 = 9800000

Dividend on common stock paid each year at Rs. 0.6/ Share

Dividend for one year = 0.6 x 700000 = Rs. 420000

Dividend for 5 Years (2004-2008) = 420000 x 5 = Rs. 2100000

Remaining Authorized common stock= 1500000 – 700000 = 1500000 shares

Available Data of Preferred Stock for 2004-2008

Authorized Preferred Stocks = 75000

Par Value = Rs. 100

50000 shares issued at par Rs. 100.

Market Value = 100

Preferred stock = 50000 x 100= 5000000

Dividend on preferred stock paid each year at Rs. 0.9/ Share

Dividend for one year = 0.9 x 50000 = Rs. 45000

Dividend for 5 Years (2004-2008) = 45000 x 5 = Rs. 225000

Remaining Authorized preferred stock= 75000 – 50000 = 25000 shares

Shares Holders Equity
For 31 December of 2008
Preferred Stock 5000000
Common Stock 700000
Total Legal Capital 5700000
Additional Paid in Capital:
Common Stock 9800000
Total Paid in Capital 15500000
Total Retained Earning 2008 (Note 1) 6425000
Total Stock Equity 9075000
Retain Earning 2008 (Note 1)
Profit for 2004-2008 8750000
Dividend on Preferred Stock 225000
Dividend on Common Stock 2100000
Retained Earning Closing Balance 2008 6425000

Calculation for 2009:

Dividend on preferred stock paid for 2009 at Rs. 0.9/ Share

Dividend for 2009 = 0.9 x 50000 = Rs. 45000

Note: no dividend offer for common stock in 2009.

Shares Holders Equity
For 31 December of 2009
Preferred Stock 5000000
Common Stock 700000
Total Legal Capital 5700000
Additional Paid in Capital:
Common Stock 9800000
Total Paid in Capital 15500000
Total Retained Earning 2009 (Note 1) 7880000
Total Stock Equity 23380000
Retain Earning 2009 (Note 1)
Retained Earning Opening Balance for 2009 6425000
Profit Earned in 2009 1500000
Dividend on Preferred Stock 45000
Retained Earning Closing Balance 2009 7880000
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