Are the nubers right on the chart? Stockholders\' equity: Assume that all the st

Question

Are the nubers right on the chart?

Stockholders' equity:

Assume that all the stock was issued on January 1, Year 1 and that no dividends were paid during the first two years of operation. During the third year, Walland Corporation paid total cash dividends of $736,000.

a. Compute the amount of cash dividends paid during the third year to each of the three classes of stock.

b. Compute the dividends paid per share during the third year for each of the three classes of stock. (Round your answers to 2 decimal places.)

c. What was the average issue price of each type of preferred stock?

Are the nubers right on the chart?

Stockholders' equity:

Preferred stock, 8% cumulative, $50 par, 40,000 shares authorized, issued, and
outstanding $ 2,000,000 Preferred stock, 12% noncumulative, $100 par, 8,000 shares authorized, issued, and
outstanding 800,000 Common stock, $5 par, 400,000 shares authorized, issued, and
outstanding 2,000,000 Total paid-in capital $ 4,800,000

Assume that all the stock was issued on January 1, Year 1 and that no dividends were paid during the first two years of operation. During the third year, Walland Corporation paid total cash dividends of $736,000.

a. Compute the amount of cash dividends paid during the third year to each of the three classes of stock.

b. Compute the dividends paid per share during the third year for each of the three classes of stock. (Round your answers to 2 decimal places.)

c. What was the average issue price of each type of preferred stock?

a. Cumulative preferred stock $540,000 Noncumulative preferred stock $96,000 Common stock $100,000 b. Cumulative preferred stock $13.50 per share Noncumulative preferred stock $12.00 per share Common stock $0.25 per share c. Cumulative preferred stock per share Noncumulative preferred stock per share

Explanation / Answer

A
Year 1: No dividends were paid
Preferred stock: 9% cumulative: No dividend paid, but $180,000 in arrears
Preferred stock: 12% noncumulative: No dividend paid, no dividend in arrears
Common stock: No dividend paid, no dividend in arrears

Year 2: No dividends were paid
Preferred stock: 9% cumulative: No dividend paid, but $180,000 in arrears
Preferred stock: 12% noncumulative: No dividend paid, no dividend in arrears
Common stock: No dividend paid, no dividend in arrears

Year 3: total cash dividends paid $736,000
Preferred stock, 9% cumulative: Made good Y1 arrears of $180,000, made good Y2 arrears of $180,000, and paid $180,000 for Y3, making a total of $540,000

Preferred stock, 12% noncumulative: Dividend of $96,000 paid

Common stock: Dividend of $100,000 paid

b.
Preferred stock: 9% cumulative: $540,000 paid, so each share = $540,000/40,000 = $13.50
Preferred stock: 12% noncumulative: $96,000 paid, so each share = $96,000/8,000 = $12
Common stock: $100,000 paid, so each share = $100,000/400,000 = $0.25

C.
Since there was no additional paid-in capital, all the shares were issued at par, so the 9% cumulative preferred stock were issued at $50 each, and the 12% noncumulative Preferred stock were issued at $100 each

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