Question

Following is the stockholder's equity section of Magnificent Molding, Inc. at December 31, 2016: Stockholders' Equity December 31, 2016 Common stock - $0.20 par value, authorized 600,000 shares $60,000 Additional paid-in capital 135,000 Treasury stock-10,000 shares (100,000) Retained earnings 35,000 Total stockholders' equity $130,000 At what average cost were the treasury stock purchased

Answer 1

The treasury stock of Magnificent Molding was purchased by the stockholders at an average cost of $0.65 per share.

What is the average cost?

The cost which is derived from the division of the total costs by the number of units of such stocks is known as the average cost of the stocks. Using the given information, further computation can be made as below,

Par Value of stocks = $60,000; Further Paid-Up Capital = $135,000. Therefore, the total value will be $(60,000+135,000)=$195,000. The total number of shares will be 300,000.

Solving further,

$\rm Average\ Cost= \dfrac{Total\ Cost}{No\ of\ Shares}\\\\\rm Average\ Cost= \dfrac{195000}{300000}\\\\\rm Average\ Cost=\ 0.65$

Hence, the average cost of treasury stock purchased by the shareholders of Magnificent Moldings Inc. is calculated above as $0.65 per share.

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