1. Consider the following facts: - Company A has issued 10%, nonparticipating, c

Question

1. Consider the following facts:

- Company A has issued 10%, nonparticipating, cumulative preferred stock with total par value of $400,000.
- It also issued common stock with total par value of $800,000.
- No dividends are in arrears.
- Company A plans to pay cash dividends of $180,000 for the year.

How much of the planned dividends will go to the preferred stockholders and how much to the common stockholders?

A. $80,000 to preferred and $100,000 to common

B. None of these answers are correct

C. $60,000 to preferred and $120,000 to common

D. $40,000 to preferred and $140,000 to common

E. $55,000 to preferred and $125,000 to common

2. Consider the following facts:

- At the beginning of 2017, Company B purchased 30% of the common stock of Company A for $80,000.
- The purchase was made at book value.
- For 2017, Company A reported net income of $20,000.
- For 2018, Company A reported net income of $60,000.
- For 2017, Company A paid dividends of $24,000.
- For 2018, Company A paid dividends of $42,000.

At the end of 2018, the balance in the Investment in Company A will be $ ________ of Company B's books.

A.$60,200

B.$63,400

C.None of these answers are correct.

D.$104,000

E. $86,200

3.Consider the following facts:

- At the beginning of the year, Company A had 25,000 shares of common stock outstanding.
- On July 1, it issued an additional 10,000 shares of common stock.
- On November 1, Company A declared a 2-for-1 stock split.

For the purpose of computing earnings per share, the weighted average common shares outstanding should be _____________.

A.50,000

B.60,000

C.56,000

D.None of these answers are correct

E.35,000

Explanation / Answer

1. D. $40,000 to preferred and $140,000 to common

Dividends to the Preferred Stockholders = 400,000*10% = $40,000

Dividends to Common Stock holders = 180,000 - 40,000 = $140,000

2. D. $104,000

Investment in common stock = $80,000

+ Net income of 2017 = $20,000 * 30% = $6,000

+ Net income of 2018 = $60,000 * 30% = $18,000

3. B 60000

Company issued 10000 Shares on july 1

and it had 25000 shares at the begining of the year

so Weighted Average would be 10000 + (25000*2) = 60000 Shares

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