1.-Early in 2016, Microsoft was formed with authorization to issue 50,000 shares of $20 par value common stock and 20,000 shares of $180 par value cumulative preferred stock. During 2017, all the preferred stock was issued at par, and on 2016 75,000 shares of common stock were sold for $30 per share. The preferred stock is entitled to a dividend equal to 5 percent of its par value before any dividends are paid on the common stock.

During its first six years of business (2016 through 2021), the company earned income totaling $3,000,000 and paid dividends of $2 per share each year on the common stock outstanding.

On January 2, 2017, the company purchased 3,000 shares of its own common stock in the open market for $70,000. On January 2, 2021, it reissued 1500 shares of this treasury stock for $36,000. The remaining 2000 shares were still held in treasury at December 31, 2021.

Instructions

Prepare the stockholders equity section of the balance sheet at December 31, 2021. Include a supporting schedule showing (1) your computation of any paid-in capital on treasury stock and (2) retained earnings at the balance sheet date (25 points)

As of December 31, 2021, compute the companys book value per share of common stock. (15 points)

At December 31, 2021, shares of the companys common stock were trading at $60. Explain what would have happened to the market price per share had the company split its stock 1.5-for-1 at this date. Also explain what would have happened to the par value of the common stock and to the number of common shares outstanding. (10 points)