Question

The stockholders’ equity section of Concord Corporation’s balance sheet at December 31 is presented here.

Concord Corporation Balance Sheet(partial)
Stockholders’ equity:

Paid-in capital
Preferred stock, cumulative, 8,000 shares authorized, 4,800 shares issued and outstanding $384,000
Common stock, no par, 870,000 shares authorized, 580,000 shares issued 2,900,000
Total paid-in capital 3,284,000
Retained earnings 1,858,000
Total paid-in capital and retained earnings 5,142,000
Less: Treasury stock (8,000 common shares) 52,800
Total stockholders’ equity $5,089,200

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 $36,000, what is the dividend rate on preferred stock?
e. If dividends of $72,000 were in arrears on preferred stock, what would be the balance reported for retained earnings?

Answer 1

Answer and Explanation:

The computation is shown below;

a.

No of Common Stock Outstanding = No. of stocks issued - Treasury stock

= 580,000 shares - 8,000 shares

= 572,000 shares

b. Stated Value of Common Stock = $2,900,000 ÷ 580,000 shares

= $5 per share

c. Par Value of the Preferred Stock = $384,000 ÷ 4,800 shares

= $80 per share

d. Dividend Rate = $36,000 ÷ $384,000

= 9.375%

e. The retained earning after arrears on preferred stock would remain the same i.e. $1,858,000 as they are declared