Question

# The stockholders’ equity section of the balance sheet for Mann Equipment Co. at December 31, 2018,...

The stockholders’ equity section of the balance sheet for Mann Equipment Co. at December 31, 2018, is as follows.

 Stockholders’ Equity Paid-in capital Preferred stock,? par value, 4% cumulative, 270,000 shares authorized, 57,000 shares issued and outstanding \$ 570,000 Common stock, \$25 stated value, 320,000 shares authorized, 57,000?? shares issued and outstanding 1,425,000 Paid-in capital in excess of par—Preferred 47,000 Paid-in capital in excess of stated value—Common 114,000 Total paid-in capital 2,156,000 Retained earnings 420,000 Treasury stock, 6,000 shares (42,000 ) Total stockholders’ equity \$ 2,534,000

Note: The market value per share of the common stock is \$44, and the market value per share of the preferred stock is \$29.

Required

What is the par value per share of the preferred stock?

What is the dividend per share on the preferred stock?

What is the number of common stock shares outstanding?

What was the average issue price per share (price for which the stock was issued) of the common stock?

If Mann Equipment Company declared 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?

Solution:

Par value of preferred stock = \$570,000 / 57000 = \$10 per share

Dividend per share on preferred stock = \$10 * 4% = \$0.40 per share

Nos of common stock outstanding = Issue shares - Shares in treasury stock = 57000 - 6000 = 51000 shares

Average issue price of common shares = (Par value of common stock + Paid in capital in excess of par common stock) / Nos of shares issued

= (\$1,425,000 + \$114,000) / 57000 = \$27 per share

Outstanding shares after stock split = 51000*2 = 102000 shares

Nothing will be transferred from retained earnings account because of stock split as no journal entry is required for stock split only par value per share is reduced.

Theortically market price per share after stock split = Market price before stock split / 2

= \$44/2 = \$22 per share