Blog: Fin621 Assignment No. 2 solution

Semester “FALL 2010”
Assignment No. 02 Marks: 10


Question:

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:

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

b. Show the complete calculation as it carries equal marks.




Schedule
Opening Date and Time: January 10 , 2011 At 12:01 A.M. (Mid-Night)
Due Date and Time: January 13 , 2011 At 11:59 P.M. (Mid-Night)


IDEA Solution:


Preferred shares 5,000,000
Common shares 700,000
Common shares in excess of par value 9,800,000
Retained Earning 5,450,000
Total Stockholders' Equity 20,950,000

............
Question : 1

Preferred stocks 50,000 . Rs.100 par value 5,000,000
Common stock 700,000 . Rs. 1 700,000
Additional Paid in Capital Common stock
700,000 . Rs. 14 9,800,000
Retained Earning 5,450,000
Total equity 20,950,000

2004 to 2008
Working: div common stock: 700,000 x .60= 420,000
= 420,000 x 5 = 2,100,000
Div preferred stock: 9x50,000 = 450,000
= 450,000 x 5 = 2,250,000
Total Div = 2,100,000+2,250,000=4,350,000
Retained earnings up to 2008 = 8,750,000-4,350,000=4,400,000
2009
Div preferred stock: 9x50,000 = 450,000
Retained earnging upto 2009 = 1,500,000 – 450,000 = 1,050,000
Net income 2009 = 1,050,000+4,400,000=5450,000
...........................
Stock holder equity
13 Jan 2011
Preferred stocks 50,000 . Rs.100 par value (50000*100) 5,000,000
Common stock 700,000 . Rs. 1 (700000*1) + 700,000
Total stock value 5700000
Additional Paid in Capital 
700,000 . Rs. 14 (700000*14) 9,800,000
Total after additional capital 15500000
add Retained Earning 5,450,000

Total Stockholders' Equity 20,950,000

Working

Preferred stocks= 50,000 
At the par value = Rs.100

50000*100= 5,000,000

Common stock = 700,000
At the par value Rs. 1

700000*1= 700,000

Calculate Retained Earnings?

Preferred stock:
9x50,000 = 450,000
450,000 *5 = 2,250,000

Common stock:
700,000 * 0.60 = 420,000
Total years= 5 years
420000*5= 2,100,000

Total = 2,100,000 + 2,250,000 = 4,350,000 
Retained earnings till to 2008 = 8,750,000 -4,350,000 = 4,400,000

For the year 2009:

Div preferred stock: 9*50,000 = 450,000

Retained earning unto 2009 = 1,500,000 - 450,000 = 1,050,000

Net income in 2009 = 1,050,000+4,400,000= 5450, 000 
Total Stockholders' Equity: 20950000