Question

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		7,800,000
Retained earnings		2,595,000
Total stockholders' equity	$	13,695,000

Required:
From this information, compute answers to the following questions.

a. How many shares of preferred stock have been issued?

b. What is the total amount of the annual dividends paid to preferred stockholders? (Round intermediate calculations to 2 decimal places.)

c. How many shares of common stock are outstanding?

d. What was the average issuance price per share of common stock? (Round your answers to 2 decimal places.)

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.)

Answer 1

a. How many shares of preferred stock have been issued? Par Value of preferred stock Divided by Par value per share No. of Preferred stock outstanding 24000 shares 2400000 100 7.5 b. What is the total amount of the annual dividends paid to preferred stockholders? Dividend per share to be paid (100*7.5%) * No. of shares 24000 Annual Preferred stock dividend $180,000.00 900000 c. How many shares of common stock are outstanding? Par value of common stock Divided by Par value per share No. of common stock outstanding d. What was the average issuance price per share of common stock? Par Value of Common stock recorded 900000 + additional paid in capital common stock 7800000 Total issue price of all common stock 8700000 Divided by No. of common stock 450000 Issue price per share 19.33333333

e. What is the amount of legal capital? Par Value of Preferred stock Par Value of Common Stock Total Legal capital 2400000 900000 3300000 f. What is the total amount of paid-in capital? Total Stock Holders Equity Less: Retained Earnings Total paid in capital 13695000 2595000 11100000 g. What is the book value per share of common stock? Total Stock Holders Equity Less: Preferred stock capital Capital belongs to common stock holders Divided by No. of common stock Book Value per share 13695000 2400000 11295000 450000 25.1 Total h What was the dividend declared during the year on each share of common stock? Opening Balance of Retained Earnings 717500 Add: Net Income of the year 3970000 4687500 less: Closing Balance of retained earnings 2595000 Total Dividend paid 2092500 less: dividend to preferred stock holders 180000 Total Dividends to common stock 1912500 Divided by No. of common stock 450000 Dividend per share 4.25