Understanding Preferred Stock Cumulative Dividends and Book Value Analysis
Learn about cumulative preferred stock dividends, book value calculations for common stock, and how to analyze stockholder equity. Explore various scenarios and understand the impact on shareholders' returns.
Understanding Preferred Stock Cumulative Dividends and Book Value Analysis
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Presentation Transcript
Chapter 13 Homework Part II
E13-8 Preferred stock is cumulative because it is not specifically designated as noncumulative. Preferred dividends per year: .08 x $10 x 20,000 = $16,000 • : Preferred stockholders receive all $15,000. Dividends on arrears of $1,000 carry forward. • : PreferredCommon $1,000 in arrears 16,000 current year $50,000 – 17,000 = $33,000 $17,000
E13-10 Book value per share on common: Total stockholders’ equity $227,000 Attributable to preferred: $50 par x 100 shares (5,000) Attributable to common $222,000 Per share: $222,000 / 10,000 = $22.20
E13-11 Book value per share on common: Total stockholders’ equity $227,000 Attributable to preferred: Dividends in arrears ($5,000 x 6% x 3 years) (900) $50 par x 100 shares (5,000) Attributable to common $221,100 Per share: $221,100 / 10,000 = $22.11
Problem 13-7A Req. 1a (Preferred stock is noncumulative)
Problem 13-7A Req. 1b (Preferred stock is cumulative)
Problem 13-8A • Req. 1 • The preferred stock is cumulative because it is not labeled otherwise. Also, the note refers to dividends in arrears, which apply only to cumulative preferred stock. • Req. 2 • Annual preferred dividend: $24,000 (8,000 $3.00) • Req. 3 • The common stockholders control the company because the preferred stock is nonvoting. • Req. 4 • Total paid-in capital is $605,000 ($320,000 + $45,000 + $240,000). • Req. 5 • Total market value of the common stock: $300,000 • 30,000 shares $10 per share = $300,000
