Problem 21-22 (AICPA Adapted)
At the beginning of the current year, Rudd Company had 700,000 ordinary shares authorized and 300,000 shares outstanding.
January 31: Declared 10% share dividend.
June 30: Purchased 100,000 treasury shares.
August 1: Reissued 50,000 treasury shares.
November 30: Declared 2-for-1 share split.
1. What is the number of issued shares at year-end?
a. 600,000
b. 660,000
c. 330,000
d. 300,000
2. How many ordinary shares are outstanding at year-end?
a. 560,000
b. 600,000
c. 630,000
d. 660,000
Answer (2)
Let's go through the events chronologically to determine the number of issued and outstanding shares at the end of the year for Rudd Company.
1. Determine the number of issued shares at year-end:
Beginning of the year:
Issued shares = 300,000 (since these are the shares outstanding and no treasury shares were mentioned at the start)
January 31: 10% share dividend
New shares issued as dividend = 300,000 shares × 10% = 30,000 shares
Total issued shares after dividend = 300,000 + 30,000 = 330,000 shares
June 30: Purchased 100,000 treasury shares
Purchasing treasury shares does not change the number of issued shares. The issued shares remain at 330,000.
August 1: Reissued 50,000 treasury shares
Reissuing treasury shares does not change the number of issued shares. The issued shares remain at 330,000.
November 30: 2-for-1 share split
A 2-for-1 split doubles the number of shares issued: 330,000 × 2 = 660,000 shares
Therefore, the number of issued shares at year-end is 660,000 (Option b).
2. Determine the number of ordinary shares outstanding at year-end:
Beginning of the year:
Outstanding shares = 300,000
January 31: 10% share dividend
New shares outstanding after dividend = 330,000 (since all issued shares are also outstanding)
June 30: Purchased 100,000 treasury shares
Outstanding shares = 330,000 - 100,000 = 230,000
August 1: Reissued 50,000 treasury shares
Outstanding shares = 230,000 + 50,000 = 280,000
November 30: 2-for-1 share split
A 2-for-1 split doubles the number of outstanding shares: 280,000 × 2 = 560,000
Therefore, the number of ordinary shares outstanding at year-end is 560,000 (Option a).
At the end of the year, Rudd Company has 660,000 issued shares and 560,000 outstanding shares. Thus, the correct answers are Option b for issued shares and Option a for outstanding shares.
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