Balance Sheet (partial) 1,200,000 1,858,000 (64,000) $3,294,000 Answer the follo

Question

Balance Sheet (partial)

1,200,000

1,858,000

(64,000)

$3,294,000

Answer the following questions.

The stockholders' equity section of Jarvis Corporation at December 31 is as follows. JARVIS CORPORATION

Balance Sheet (partial)

Paid-in capital       Preferred stock, cumulative, 10,000 shares authorized, 6,000 shares issued $ 300,000          and outstanding       Common stock, no par, 750,000 shares authorized, 600,000 shares issued

1,200,000

         Total paid-in capital 1,500,000 Retained earnings

1,858,000

            Total paid-in capital and retained earnings 3,358,000 Less: Treasury stock (10,000 common shares)

(64,000)

           Total stockholders' equity

$3,294,000

Explanation / Answer

1. How many shares of common stock are outstanding?
600,000 shares issued less 12,000 common shares in Treasury stock = 588,000 common shares outstanding

2. Assuming there is a stated value, what is the stated value of the common stock?
$1,200,000/600,000 = stated value of $2 per share

3. What is the par value of the preferred stock?
$600,000/6,000 = par value of $100

4. If the annual dividend on preferred stock is $30,000, what is the dividend rate on preferred stock?
$30,000/$600,000 = 5%

5. If dividends of $60,000 were in arrears on preferred stock, what would be the balance in Retained Earnings?
$1,858,000 - there is no change. Preferred dividends in arrears are not recognised in the financial statements. However they must be disclosed in the notes to the financial statements. <

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