Analysis of Stockholders’ Equity The stockholders’ equity section of the balance sheet of Purity Company at December 31, 2000, contained the following balances:

a. What was the average price received for the shares of common stock issued?

b. What was the average price paid for the treasury stock purchased?

c. If Purity pays a dividend of $1.75 per share to the common shareholders, what is the total amount of the dividend that must be declared?

d. What effect would the sale of 2,500 treasury shares at $41 per share have on the reported stockholders’ equity balances? What effect would it have on the total amount of the dividend payment if the sale occurred prior to the dividend declaration?

Transcribed Image Text:

Preferred stock ($10 par; 8% dividend rate; 100,000 shares authorized; 45,000 shares issued and outstanding) Common stock ($20 par; 50,000 shares authorized; 30,000 shares issued; 24,000 shares outstanding) $ 450,000 600,000 Additional paid-in capital 360,000 Retained earnings 870,000 Total $2,280,000 Less: Treasury stock (6,000 shares, at cost) (204,000) Total stockholders' equity $2,076,000