The stockholders’ equity section of Leyland Corporation’s balance sheet at Decem
ID: 2498130 • Letter: T
Question
The stockholders’ equity section of Leyland Corporation’s balance sheet at December 31 is presented here.
$ 760,000
2,300,000
3,060,000
1,169,900
4,229,900
(27,680
)
$4,202,220
From a review of the stockholders’ equity section, answer 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 $45,600, what is the dividend rate on preferred stock?
(e) If dividends of $72,300 were in arrears on preferred stock, what would be the balance reported for retained earnings?
Balance Sheet (partial) Stockholders’ equity Paid-in capital Preferred stock, cumulative, 12,667 shares authorized, 7,600 shares issued and outstanding
$ 760,000
Common stock, no par, 743,534 shares authorized, 575,000 shares issued2,300,000
Total paid-in capital3,060,000
Retained earnings1,169,900
Total paid-in capital and retained earnings4,229,900
Less: Treasury stock (5,190 common shares)(27,680
)
Total stockholders’ equity$4,202,220
Explanation / Answer
No par stocks are issued primarily to accept whatever investors are willing to pay for the company's share. Hence in this case, the no of shares issued is 575000 and realised $2300000. The stated value of stock is $2300000.
a. No of common shares outstanding is 575000
b. Stated value per share of common stock is $ 4 ie., 2300000/575000
c. Par value of Preference shares is $100 ie., 760000/7600
d. Dividend % = Dividend / Preference share capital ie., 45600/760000 = 6%
e. Preference shares dividend is charged to retained earnings similar to any interest payable on debt. If the dividend is in arrears then to that extent it would appear in current liabilities. As the annual preference dividend payable is charged off in the retained earnings already , the fact that arrears are there as on balancesheet date , does not alter the reported retained earnings. Hence, retained earnings would remain as 1169900
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