Question

The stockholders’ equity section of the balance sheet for Mann Equipment Co. at December 31, Year...

The stockholders’ equity section of the balance sheet for Mann Equipment Co. at December 31, Year 1, is as follows:

Stockholders’ Equity
Paid-in capital
Preferred stock, ? par value, 5% cumulative,
140,000 shares authorized, 44,000 shares issued and outstanding		 $ 440,000
Common stock, $20 stated value, 190,000 shares
authorized, 44,000 shares issued and outstanding		 880,000
Paid-in capital in excess of par—Preferred 34,000
Paid-in capital in excess of stated value—Common 66,000
Total paid-in capital 1,420,000
Retained earnings 290,000
Total stockholders’ equity $ 1,710,000


Note: The market value per share of the common stock is $36, and the market value per share of the preferred stock is $16.

Required
a. What is the par value per share of the preferred stock?
b. What is the dividend per share on the preferred stock? (Round your answer to 2 decimal places.)
c. What was the average issue price per share (price for which the stock was issued) of the common stock? (Round your answer to 2 decimal places.)
e. If Mann declares a 2-for-1 stock split on the common stock, how many shares will be outstanding after the split? What amount will be transferred from the retained earnings account because of the stock split? Theoretically, what will be the market price of the common stock immediately after the stock split?

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Homework Answers

Answer #1

Solution a:

Par value per share of preferred stock = Preferred stock value / preferred shares issued

= $440000/44000 = $10 per share

Solution b:

Dividend per share on preferred stock = Par value per share * 5% = $10*5% = $0.50 per share

Solution c:

Average issue price per common share = (common stock + paid in capital in excess of stated value common stock) / common shares issued

= ($880000+ $66000) / 44000 = $21.50 per share

Solution e:

Outstanding shares after stock split = outstanding shares *2 = 44000*2 = 88,000 shares

Amount transferred from retained earnings account = $0 (because only par value is halved and shares are are doubled, No change in total value)

Market price of common stock = $36/ 2 = $18

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