Answer:
a. $1,100
b. $3,000
c. $3,750
d. 250 shares
e. 75 shares
f. Cannot be found because the expected rate of return is not given
Explanation:
a. Amount of cash collected when preferred stock was issued
Stated Value = $500
Paid in Capital in excess of Stated Value = $600
Cash Collected = $(500 + 600) = $1,100
b. Amount of company's legal capital based on class B common stock alone
Issued shares = 150
Par value = $20
Company's legal capital amount = 150 * 20 = $3,000
c. Minimum amount of assets that must be retained in the company as protection for creditors based on the class B common stock alone
Stated value of common stock = $3,000
Paid in capital in excess of par value = $750
Minimum retain amount = $(3000 + 750) = $3,750
d. Number of shares of class B common stock that are available to sell as of December 31, 2018
Authorized shares = 400
Issued and outstanding = 150
Shares available to sell = 400 - 150 = 250 shares
e. Amount of the no-par common stock that would be outstanding immediately after the purchase of treasury stock as assumed
Shares before purchase = 100
Shares purchased = 25
Outstanding no-par common stock = 100 - 25 = 75 shares
f. Market value of preferred stock
The expected rate of return is required to calculate the market value of preferred stock, but since this is not given in the question, the market value of preferred stock cannot be calculated.
Assuming the required rate of return is 12%
And the dividend rate of preferred stock is 7%
Stated Value or par value = $10
Dividend amount = $10 * 7% = $0.7
Hence the market value of preferred stock = Dividend / Required Rate of Return
= $0.7/0.12 = $5.83