The stockholders\' equity section of a balance sheet at December 31, 2015, is as
ID: 2471046 • Letter: T
Question
The stockholders' equity section of a balance sheet at December 31, 2015, is as follows:
7% Preferred Stock, $1 par, 10,000 shares authorized, 3,000 shares issued ---- $3,000
Common Stock, $1 par, 150,000 share authorized, 10,000 shares issued --- 10,000
Paid-in Capital in Excess of Par: Preferred Stock--- 9,000
Common Stock ----20,000
Total Capital Stock -- 42,000
Retained Earnings--- 150,000
Less: Treasury Stock (1,000 common shares at cost)--- 6,000
Total Stockholders' Equity --- $186,000
A) What was the average issue price of the preferred stock? $ per share
B) What was the average issue price of the common stock? $ per share
C) What will be the retained earnings account balance immediately following a 2-for-1 stock split? $
D) If the company's board of directors declares a cash dividend consisting of the annual stated dividend rate for preferred stockholders plus $1 per share for common stockholders, what is the total amount of dividends to be paid and what would be the remaining balance in the retained earnings account immediately following the declaration of this cash dividend?
Total dividends: $
Retained earnings: $
Explanation / Answer
Answer
Answer A)
What was the average issue price of the preferred stock? $ per share
Average issue price of preferred stock = (Paid in capital of preferred stock + Paid-in Capital in Excess of Par: Preferred Stock) / number of issued preferred stock
= (3000 + 9000) / 3000
= 12000 / 3000
= $ 4 per share
Answer B)
What was the average issue price of the common stock? $ per share
Average issue price of common stock = (Paid in capital of common stock + Paid-in Capital in Excess of Par: common Stock – treasury common stock value) / number of issued common stock –treasury common stock
= (10000 + 20000 - 6000) / 10000 -1000
= 24000 / 9000
=$ 2.67 per share
Answer C)
What will be the retained earnings account balance immediately following a 2-for-1 stock split? $
Stock split is a corporate action in which a company divides its existing shares into multiple shares. Although the number of shares outstanding increases by a specific multiple, the total dollar value of the shares remains the same compared to pre-split amounts, because the split did not add any real value.
So Balance of Retained earnings balance will be $ 150,000
Answer D)
If the company's board of directors declares a cash dividend consisting of the annual stated dividend rate for preferred stockholders plus $1 per share for common stockholders, what is the total amount of dividends to be paid and what would be the remaining balance in the retained earnings account immediately following the declaration of this cash dividend?
Total dividends: Preferred stock dividend + Common stock dividend
=( $3,000 * 7%) + (10,000 * 1)
= $ 210 + $ 10000
= $ 10210
Retained earnings after dividend = $ 150,000 - $ 10210
= $ 139790
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