3. Analysis of stockholders\' equity Star Corporation issued both common and pre

ID: 2372303 • Letter: 3

Question

3. Analysis of stockholders' equity

Star Corporation issued both common and preferred stock during 19X6. The stockholders' equity sections of the company's balance sheets at the end of 19X6 and 19X5 follow.

19X6 19X5

Preferred stock, $100 par value, 10% $580,000 $500,000

Common stock, $10 par value 2,350,000 1,750,000

Paid-in capital in excess of par value

Preferred 24,000 â€”

Common 4,620,000 3,600,000

Retained earnings 8,470,000 6,920,000

Total stockholders' equity $16,044,000 $12,770,000

a. Compute the number of preferred shares that were issued during 19X6.

b. Calculate the average issue price of the common stock sold in 19X6.

c. By what amount did the company's paid-in capital increase during 19X6?

d. Did Star's total legal capital increase or decrease during 19X6? By what amount?

Explanation / Answer

Particulars

1995

1996

Preferred Stock

580000

500000

Common stock

2350000

1750000

Securities Premium Preferred

24000

Securities Premium Common

4620000

3600000

Retained Earnings

8470000

6920000

Total Equity

=SUM(ABOVE) 16044000

=SUM(ABOVE) 12770000

= 500000/100 = 5000shares

Redemption value = reduction in capital & securities premium

=(2350000-1750000) + (4620000-3600000)

=1620000

No. Of shares redeemed = (580000-500000)/100 = 800 shares

Average Issue price = 1620000/800 = 2025

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