7. The stockholders’ equity section ofZenith Corporation at December 31st is as
ID: 2481728 • Letter: 7
Question
7. The stockholders’ equity section ofZenith Corporation at December 31st is as follows: paid I capitol preferred stock, cumulative Directions After reviewing the stockholders’ equity section, write a memo to the Board of Directors answering the following questions: (a) How many shares of common stock are outstanding? (b) Assuming there is a stated value, what is the stated value of the common stock? (c) What is the par value of the preferred stock? (d) If the annual dividend on preferred stock is $30,000, what is the dividend rate on preferred stock? (e) If dividends of $60,000 were in arrears on preferred stock, what would be the balance in Retained Earnings?
Paid in capitol preferred stock, cumulative, 10,000 shares authorized, 6,000 shares issued and outstanding 300,000
common stock, no. par, 750,000 shares authorized, 600,00 shares issued 120,000
total paid-in capital 1,500,000
retained earnings 1,858,000
total paid in capitol and retained earnings 3,358,000
less: treasury stock(10,000 common shares) 64,000
total stockholders equity 3,294,000
Explanation / Answer
(a) How many shares of common stock are outstanding = 60,000 shares
(b) Assuming there is a stated value, what is the stated value of the common stock = 120,000/60,000
= $2 per common stock
(c) What is the par value of the preferred stock = 300,000/6000
= $50 per preferred stock
(d) If the annual dividend on preferred stock is $30,000, what is the dividend rate on preferred stock = 30,000/3000,000 * 100
= 10%
e) If dividends of $60,000 were in arrears on preferred stock, what would be the balance in Retained Earnings = $1,858,000
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