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Exercise #10 - Retained earnings $30,000,000 Treasury...

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1 Finance 351: Financial Management Instructor: Shuming Liu In-Class Exercise 10 Chapter 14 A corporation has authorized share capital of 1 million shares, of which 800,000 shares are issued and 200,000 are treasury shares. Construct the equity portion of the balance sheet if the net common equity is $40 million, all shares were issued with a par value of $1 and an issue price of $25, and retained earnings are $30 million. Answer: Common shares ($1 per value per share) $1*800,000 = $800,000 Additional paid-in capital $25*800,000 – $800,000 = $19,200,000
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Unformatted text preview: Retained earnings $30,000,000 Treasury shares @ cost ($10,000,000) Net common equity $40,000,000 Treasury shares @ cost = – (Net common equity – Common shares ($1 per value per share) – Retained earnings) = – ($40,000,000 – $800,000 – $19,200,000) = – 10,000,000 Outstanding Shares Note: (600,000 shares) Issued Shares (800,000 shares) Authorized shares Treasury Stock (1 million shares) (200,000 shares) Not issued Shares (200,000 shares) The corporation can issue 200,000 (= 1 million - 800,000) shares more without shareholders' approval....
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