Kilgore Auto Parts reported the following information at December 31, 2004: - Pr

Question

Kilgore Auto Parts reported the following information at December 31, 2004:

- Preferred stock, 10%, $24 par value, cumulative $60,000
- Common stock, $2.50 par value 10,000
- Additional paid-in capital – Common stock 30,000
- Retained earnings 50,000
- Total contributed capital and retained earnings 150,000
- Less: Treasury stock (100 shares common stock at cost) (5,000)
- Total stockholders’ equity $145,000

1. How many shares of common stock are issued? _____________

2. How many shares of preferred stock are issued? _____________

3. How many shares of common stock are outstanding? ______________

4. What is the dividend PER SHARE that preferred shareholders are entitled to when a dividend is declared? __________________

5. What was the average price of common shares when they were issued? __________

6. If a 45% stock dividend were issued, by how much would the total stockholders’ equity balance change? ___________________

Explanation / Answer

1. C/S issued = 10,000 / 2.5 = 4,000 2. P/S issued = 60,000 / 24 = 2,500 3. Shares issued = 4,000, shares repurchased (treasury) = 100, Shares outstanding = 4,000 - 100 = 3,900 4. Dividends per share = 24 * 10% = 2.4 5. Average price = (C/S + APIC) / # of shares = (10,000 + 30,000) / 4,000 = $10 6. Total Stockholders' equity will not change. This is because, we will debit Retained Earnings, and Credit Common Stocks. This will result in reduction of retained earnings and increase in common stocks at the same amount. As a result, total stockholders' equity will not change.

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