Question

A portion of the stockholders' equity section from the balance sheet of Walland Corporation appears as follows. $1,700,000 Stockholders' equity: Preferred stock, 9% cumulative, $50 par, 34,000 shares authorized, issued, and outstanding Preferred stock, 12% noncumulative, $100 par, 5,800 shares authorized, issued, and outstanding Common stock, $5 par, 360,000 shares authorized, issued, and outstanding Total paid-in capital 580,000 1,800,000 $4,080,000 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? per share a. Cumulative preferred stock Noncumulative preferred stock Common stock b. Cumulative preferred stock Noncumulative preferred stock Common stock c. Cumulative preferred stock Noncumulative preferred stock per share per share per share per share

Answer 1

Categories of shares are as follows:

1. 9% cumulative preferred : 34000 shares @50 par value

2. 12% non cumulative preferred : 5800 shares @ 100 par value

3. Common : 360,000 shares @ 5 par.

Issue date for all above is January 1.

Year 1 no dividends

Year 2 No dividends

Solution a.

Cash Dividends paid during third year for each class above:

9% cumulative Year 1 dividend 9% on 1,700,000 = 153,000 +Year 2 =153,000+ Year 3 =153,000 = 459,000

12% non cumulative year 3 only (since non cumulative) 12% on 580,000 = 69,600

dividends paid for common stock is (736,000-459,000-69600) = 207,400

Solution b

Dividends per share for each class as follows:

1. 9% cumulative = 459000/34000 = $13.50

2. 12% non cumulative = 69600/5800 = $12.00

3. Common stock 207,400 / 360,000 = $0.58

Solution C

Average issue price for 9% preferred stock = (34000*50+580,000)/34000 = 2280000/34000= $ 67.06 per share.

Average issue price for 12% preferred stock = 2280000/5800 = $ 393.10 per share.