Problem 13-8A Razz Corporation’s common stock is currently selling on a stock exchange at $170 per share, and its current balance sheet shows the following stockholders’ equity section
ANSWER KEY Problem 13-8A Computation of book values and dividend allocations C3 A2 P2
13. Accounting for Corporations
Larson−Wild−Chiappetta: Fundamental Accounting Principles, Seventeenth Edition
Problem 13-8A Razz Corporation’s common stock is currently selling on a stock exchange at $170 per share, and its current balance sheet shows the following stockholders’ equity section
Preferred stock—5% cumulative, $___ par value, 1,000 shares
authorized, issued, and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000
Common stock—$___ par value, 4,000 shares authorized, issued,
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $560,000
Required
1. What is the current market value (price) of this corporation’s common stock?
2. What are the par values of the corporation’s preferred stock and its common stock?
3. If no dividends are in arrears, what are the book values per share of the preferred stock and the common stock?
4. If two years’ preferred dividends are in arrears, what are the book values per share of the preferred stock and the common stock?
5. If two years’ preferred dividends are in arrears and the preferred stock is callable at $110 per share, what are the book values per share of the preferred stock and the common stock?
6. If two years’ preferred dividends are in arrears 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? What is the amount of dividends per share for the common stock?
Analysis Component
7. What are some factors that can contribute to a difference between the book value of common stock and its market value (price)?
Check (4) Book value of common, $112.50
(5) Book value of common, $110
(6) Dividends per common share, $1.25
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SOLUTION PREVIEW
Problem 13-8A
1. Market price = $170 per share (current stock exchange price
given)
2. Computation of stock par values
Preferred:
Paid-in amount / Number of shares = $100,000 / 1,000 = $100
Common:
Paid-in amount / Number of shares = $160,000 / 4,000 = $40
3. Book values with no dividends in arrears
Book
value per preferred share = par
value (when not callable) = $100
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Common stock
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Total equity
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$ 560,000
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