Questions: E, F, G, and H The year-end balance sheet of Ft. Smith Products inclu
ID: 2588026 • Letter: Q
Question
Questions: E, F, G, and H
The year-end balance sheet of Ft. Smith Products includes the following stockholders’ equity section (with certain details omitted).
Stockholders' equity:
7 1/2% cumulative preferred stock, $100 par value, 100,000 shares authorized
$
2,400,000
Common stock, $2 par value, 900,000 shares authorized
900,000
Additional paid-in capital: common stock
8,325,000
Retained earnings
2,595,000
Total stockholders' equity
$
14,220,000
e. What is the amount of legal capital?
f. What is the total amount of paid-in capital?
g. What is the book value per share of common stock? (There are no dividends in arrears.) (Round your answers to 2 decimal places.)
h. Assume that retained earnings at the beginning of the year amounted to $717,500 and that net income for the year was $3,970,000. What was the dividend declared during the year on each share of common stock? (Hint: Net income increases retained earnings, whereas dividends decrease retained earnings.) (Round your answers to 2 decimal places.)
Stockholders' equity:
7 1/2% cumulative preferred stock, $100 par value, 100,000 shares authorized
$
2,400,000
Common stock, $2 par value, 900,000 shares authorized
900,000
Additional paid-in capital: common stock
8,325,000
Retained earnings
2,595,000
Total stockholders' equity
$
14,220,000
Explanation / Answer
e. Legal capital is the amount of capital that cannot legally be allowed to leave the business, i.e. it cannot be allowed to be distributed as dividend or in any other form. It implies the par value of common stock issued and the stated value of preferred stock issued to the investors. Hence the legal capital is computed as follows:
f. Paid in capital is the sum total of legal capital of stock and the additional paid in capital
g. Book value per share
h.
Preferred stock $2,400,000 Common stock 900,000 Legal capital $3,300,000Related Questions
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