Question

The year-end balance sheet of Columbus Products, Inc., includes the following stockholders’ equity section (with certain details omitted).

Stockholders' equity:
Capital stock:
7% cumulative preferred stock, $100 par value	$	15,000,000
Common stock, $5 par value, 5,000,000 shares authorized, 3,900,000 shares issued and outstanding		19,500,000
Additional paid-in capital:
Common stock		49,000,000
Retained earnings		64,450,000
Total stockholders’ equity	$	147,950,000

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 to which preferred stockholders are entitled?

c. What was the average issuance price per share of common stock?

d. What is the amount of legal capital and the amount of total paid-in capital?

e. What is the book value per share of common stock, assuming no dividends in arrears?

f. Is it possible to determine the fair market value per share of common stock from the stockholders' equity section above?

Answer 1

a)	Shares of Preferred stock						150,000	shares
	(15,000,000/100)
b)	Annual dividend Preferred shareholders						1,050,000
	(15,000,000*7%)=
c)	Average issuance price per share of common stock						18	(rodunded)
	common stock at par value					19,500,000
	addittional capital					49,000,000
	total capital					68,500,000
	divide by total stock issued and outstanding					3,900,000
	average issuance price					17.5641026
							34,500,000
d)	Legal capital
	preferred stock at par value					15,000,000
	common stock at par value					19,500,000
	total legal capitsl					34,500,000
	total paid in capital						83,500,000
	legal capital					34,500,000
	addittional capital					49,000,000
	total paid in capital					83,500,000
e)	Book value						34.09	(rounded)
	total Stockholders Equity					147,950,000
	less: par value of preferred stock					15,000,000
	Equity of common shareholders					132,950,000
	common shares outstanding					3,900,000
	book value per share					34.0897436
f)	No, changes in market value does not affect the fianancial position of a
	corporation , hence not reflected in the equity section of
	balance sheet