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Presentation/PPT
27/08/2022
The following information was available for the Sutton Company at the beginning of 2003:• The company is authorized to issue 8,000,000 shares of $1 par value common stock. As of December 31, 2002, 3,100,000 shares were outstanding.• 700,000 shares of convertible preferred stock had been issued on July 1, 2002. The stock was issued at its par value of $25, and it has an annual cumulative dividend of $3 per share. The stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30.• 500,000 options to buy common stock were issued during 2002. Each option allows the holder to buy one share for $6 on or before January 2006. The option contract specifies that if the company has a stock split or stock dividend, then (a) additional options will be granted so that after the split, total options issued equals pre-split options multiplied by the split factor (e.g. 2 for a 2-for-1, 3 for 2-for-1, etc) and (b) the exercise prices after the split equal the pre-split exercise divided by the split factor. No options were exercised during 2003.• Sutton is subject to a 40% income tax rate.The following transactions occurred during 2003:• April 1- 200,000 shares of preferred stock are converted into common shares.• July 1 – A 2-for-1 split of the common stock became effective on this date.• August 1 – A total of 300,000 shares of common stock were issued to acquire a factory building.• November 1 – Sutton repurchased a total of 24,000 shares of common stock on the open market for $9 per share.• Preferred stock cash dividends were declared and paid as scheduled. Common shareholders received a $.40 per share cash dividend on November 25.• The average market price of Sutton’s stock in the first half of 2003 is $10/share. Due to the stock split, the average price falls to $5 during the second half of 2003.• The after-tax income for the year ended
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