Problem

Analysis of an Equity Section of a Balance SheetThe year-end balance sheet of Ft. Smith Pr...

Analysis of an Equity Section of a Balance Sheet

The year-end balance sheet of Ft. Smith Products includes the following stockholders’ equity section (with certain details omitted):

Stockholders’ equity:

 

7½% 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

8,325,000

Retained earnings

2,595,000

Total stockholders’ equity

$14,220,000

Instructions

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?


c. How many shares of common stock are outstanding?


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


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.)


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.)

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