Question

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

Balance Sheet (partial) 

Stockholders' equity 

Paid-in capital 

Preferred stock, cumulative, 11,800 shares authorized, 7,100 shares issued and outstanding   $ 710,000

Common stock, no par, 725,000 shares authorized, 555,000 shares issued                          1,665,000

Total paid-in capital                                                                                                      2,375,000

Retained earnings                                                                                                          1,151,000

Total paid-in capital and retained earnings                                                                       3,526,000

Less: Treasury stock (7,000 common shares)                                                                    37,300

Total stockholders' equity                                                                                              $3,488,700 

From a review of the stockholders' equity section, answer the following questions. 

(a) How many shares of common stock are outstanding? Common stock outstanding 547900 shares 

(b) Assuming there is a stated value, what is the stated value of the common stock? The stated value of the common stock per share 

(c) What is the par value of the preferred stock? The par value of the preferred stock per share 

(d) If the annual dividend on preferred stock is $49,700, what is the dividend rate on preferred stock? The dividend rate

 (e) If dividends of $71,400 were in arrears on preferred stock, what would be the balance reported for retained earnings? The Retained Earnings balance

Answer 1

Answer
a	Common stock outstanding = 555000-7000=	548000
b	Stated value = 1665000/555000=	$              3
c	Par value = 710000/7100=	$          100
d	Dividend rate = 49700/710000=	7%
e	Retained earnings balance = 1151000-71400=	$1,079,600

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Answer 2

The answer for part e. should be 1151000 and NOT 1,079,600! Since the dividends in arrears have not been declared yet, there is no need to worry about them, hence, subtracting that amount from the retained earnings would be INCORRECT!