elta Tech Corporation’s common shares are currently selling on a stock exchange

Question

elta Tech Corporation’s common shares are currently selling on a stock exchange at $74.50 per share, and a recent balance sheet shows the following information:

Required:
Preparation Component:
1. What is the market value of the corporation’s common shares?     



2. How much capital was contributed by the residual owners of the company?     



3. If no dividends are in arrears, what are the book values per share of the preferred shares and the common shares?     



4. If two years’ preferred dividends are in arrears, what are the book values per share of the preferred shares and the common shares? (Round the final answers to 2 decimal places.)    



5-a. If two years’ preferred dividends are in arrears and the board of directors declares dividends of $21,000, what total amount will be paid to preferred and common shareholders?        



5-b. What is the amount of dividends per share for the common shares? (Round the final answer to 3 decimal places.)        

Delta Tech Corporation Equity Section of Balance Sheet April 30, 2017   Contributed capital:      Preferred shares, $2.50 cumulative, 2,000 shares authorized,
       issued and outstanding $ 184,000     Common shares, 8,000 shares authorized, issued, and outstanding 256,000      Total contributed capital $ 440,000   Retained earnings 400,000   Total equity $ 840,000

Explanation / Answer

Solution 1:

Market value of the corporation’s common shares = Outstanding shares* Marker price per share

= 8000 * $74.50 = $596,000

Solution 2:

Capital introduce by residual owners = $184,000 (Preferred capital)

Solution 3:

If no dividends are in arrears, book values per share of the preferred shares = Contributed capital by preferred shareholder / Nos of outstanding share for preferred shareholder

= $184,000 / 2000 = $92 per share

Book value per share for common shareholders = (Contributed capital + Retained earnings) / Outstanding shares

= ($256,000 + $400,000) / 8000 = $82 per share

Solution 4:

If two years’ preferred dividends are in arrears, book values per share of the preferred shares =

(Contributed capital by preferred shareholder +dividend in arrears) / Nos of outstanding share for preferred shareholder

= ($184,000 + 2000*$5) / 2000 = $97 per share

Book value per share for common shareholders = (Contributed capital + Retained earnings - Dividend in arrears for preferred share holders) / Outstanding shares

= ($256,000 + $400,000 - $10,000) / 8000 = $80.75 per share

Solution 5a:

If two years’ preferred dividends are in arrears and the board of directors declares dividends of $21,000, total amount will be paid to preferred share holder = Dividend of 2 years in arrears

= $10,000

Dividend paid to common shareholders = $21,000 - $10,000 = $11,000

Solution 5b:

dividends per share for the common shares = $11,000 / 8000 = $1.375 per share

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