Question

Raphael Corporation’s balance sheet shows the following stockholders’ equity section.

Preferred stock—5% cumulative, $___ par value, 1,000 shares
authorized, issued, and outstanding

$

50,000

Common stock—$___ par value, 4,000 shares authorized, issued,
and outstanding

100,000

Retained earnings

370,000

Total stockholders' equity

$

520,000

1. What are the par values of the corporation’s preferred stock and its common stock?

	Par Value
Corporation's preferred stock
Corporation's common stock

2. If no dividends are in arrears at the current date, what is the book value per share of common stock?

Book Value Per Common Share
Choose Numerator:	/	Choose Denominator:	=	Book Value Per Common Share
	/		=	Book value per common share
	/		=

3. If two years’ preferred dividends are in arrears at the current date, what is the book value per share of common stock?

Book Value Per Common Share
Choose Numerator:	/	Choose Denominator:	=	Book Value Per Common Share
	/		=	Book value per common share
	/		=

4. If two years’ preferred dividends are in arrears at the current date and the board of directors declares cash dividends of $20,000, what total amount will be paid to the preferred and to the common shareholders?

Total amount paid to the preferred shareholders
Total amount paid to the common shareholders

Answer 1

1.Par value per share = Total Book value/Number of shares

Corporation's preferred stock= 50,000/1,000 = $50

Corporation's common stock= 100,000/4,000 = $25

Book Value per share = (Common Stock+ Retained Earnings)/Number of shares outstanding

= (100,000+370,000)/4,000

= $117.5

3.Total Dividend outstanding = 50,000*5%*2 = $5,000

Book Value per Share = (470,000 – 5000)/4,000

= $116.25

4.Prior year dividend on cumulative preferred stock is paid before any dividend is paid to common shareholders

Total amount paid to preferred shareholders = 50,000*5%*3 = $7,500

Common Shareholders = 20,000-7,500 = $12,500