Ken Young and Kim Sherwood organized Reader Direct as a corporation; each contributed $55,000 cash to start the business and rec
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Answer:
a) 548,000 shares
b) The stated value = $3 per common stock.
c) The par value of the preferred stock = $100
d) The dividend rate of preferred stock = 7%
e) Reported for retained earnings = $1,079,600
Explanation:
A. Number of outstanding common stock = Number of Common stock - Treasury stock
Given,
Number of Common stock issued = 555,000 shares
Treasury stock = 7,000 common shares
Treasury stock is the purchasing of the company's own stock from the market.
Therefore, Number of outstanding common stock = (555,000 - 7,000) shares
Number of outstanding common stock = 548,000 shares.
B.
The stock of the firm has no par value. It means the full amount is either in the premium or in stated value. Therefore, the firm's declared value of the common stock is the total common stockholders' equity divided by the total number of common stock issued.
Hence, the formula is,
The stated value =
The stated value =
The stated value = $3 per common stock.
C.
We know,
The par value of the preferred stock =
Given,
Total preferred stockholders' equity = $710,000
Number of preferred stock = 7,100 shares
Putting the value in the formula,
The par value of the preferred stock =
The par value of the preferred stock = $100
It is the selling price to the preferred stockholders for every preferred stock.
D.
Given,
The annual dividend = $49,700
Total preferred stockholders' equity = $710,000
We know, the dividend rate of preferred stock = x 100
Therefore,
The dividend rate of preferred stock = x 100
The dividend rate of preferred stock = 7%
This is a fixed rate and for this firm, it is cumulative. Therefore, the firm's preferred stockholders' will receive 7% dividend per year.
E.
Since the preferred stock of this firm is cumulative, therefore, the dividend has to be paid to the preferred stockholders if there are any outstanding amount remains in the previous year. Therefore, if there were $71,400 arrears of dividends, the firm would give those amounts from the retained earnings' balance.
Given,
Retained earnings = $1,151,000
Arrear preferred dividend = $ (71,400)
The balance would be reported for retained earnings = $1,079,600