Question

The stockholders’ equity section of Pina Colada Corp. at December 31 is as follows.

Pina Colada Corp. Balance Sheet(Partial)
Paid-in capital
Preferred stock, cumulative, 10,000 shares authorized, 7,000 shares issued and outstanding		$420,000
Common stock, no par, 700,000 shares authorized, 570,000 shares issued		1,140,000
Total paid-in capital		1,560,000
Retained earnings		1,858,000
Total paid-in capital and retained earnings		3,418,000
Less: Treasury stock (12,000 common shares)		62,400
Total stockholders’ equity		$3,355,600

From a review of the stockholders’ equity section, as chief accountant, write a memo to the president of the company answering the following questions.

(a)		How many shares of common stock are outstanding?			shares
(b)		Assuming there is a stated value, what is the stated value of the common stock?		$	per share
(c)		What is the par value of the preferred stock?		$	per share
(d)		If the annual dividend on preferred stock is $21,000, what is the dividend rate on preferred stock?		%
(e)		If dividends of $42,000 were in arrears on preferred stock, what would be the balance in Retained Earnings?

Answer 1

A)
Issued Common Stock	570000
Less: traesury Stock	12000
Total Common Stock Outstanding	558000
B)
Issued Common Stock	570000
Issue Price	$1140000
Stated Value	1140000/570000
	$2
C)
Preferred stock
Issued	7000
Issue Price	$420000
Stated Value	1140000/570000
	$60
D)
Annual Dividend	$21000
Issue Price	420000
Coupon rate	21000/420000
	5.00%
E)
Retained Earnings	$1858000
Less: Preferred dividend arrears	$42000
Balance in Retained earnings	$1816000