Question

EQUITY

Thomas' Corporation had the following stockholders’ equity information from the balance sheet for year ending 12/31/2018.

Preferred Stock - $50 par value, 10% cumulative, 10,000 shares authorized, 4,000 shares issued

Treasury Stock on Preferred $50 par value, 10% cumulative 1000 shares, company paid $150,000 for the Treasury Stock

Common Stock - $2 par value, 1,000,000 shares authorized, 60,000 shares issued

Capital Excess of Par $480,000

Treasury Stock on Common 8,000 shares, company paid $160,000 for the Treasury Stock

Retained Earnings $45,000,000

A). If dividends were paid in the amount of $4,000,000 how much would the preferred shareholders and common stockholders receive assuming no dividends in the arrears?

B). Assuming the company has been in the arrears for two years, how much in dividends would the preferred shareholders and common shareholders receive if the company paid $8,000,000 in dividends this current year?

C). What is the dividend pay-out per share for both the common and preferred stock?

D).   What would be the impact on the balance sheet if the company announced a 2-1 stock split on preferred stock?

E).   The company has announced a 10% stock dividend on the common stock when the market value of each common share was $25. Describe the impact to the company of such an announcement. Provide specific numbers.

F). What is the result if the company announced a common stock dividend when the market price was $ 30 per share?

Answer 1

A (share outstanding x par value x rate of dividend) total dividend Dividend paid to preferred stock holder 3,000 x 50 x 10% 15,000 Dividend paid to Common stock holder ------- 3,985,000 Total dividend paid 4,000,000

• No dividend arrears for previous years so. Preferred stockholder will be paid for current year’s dividend only.

B
	(share outstanding x par value x rate of dividend)	total dividend
Dividend paid to preferred stock holder :
For current year	3,000 x 50 x 10%	15,000
arrears dividend for last two years	3,000 x 50 x 10% x 2	30,000
Total		45,000
Dividend paid to Common stock holder	------	7,955,000
Total dividend paid		8,000,000

• Preferred stock is cumulative and therefore arrears dividend for two years is also paid in current year.

C
	Total dividend paid	/	share out standing	Divined payout per share
for situation (A)
preferred stock	15,000	/	3,000	5
Common stock	3,985,000	/	52,000	76.63
for situation (B)
preferred stock	45,000	/	3,000	15
Common stock	7,955,000	/	52,000	152.98

D

If company announces 2-1 stock split on preferred stock. Number of outstanding preferred stock will be increased by 3,000 shares that means after stock split total number of outstanding preferred stock will be 6,000 and the value of share will become a half of actual price. Stock split does not affect the balance sheet on the number of share will be increased and per share value will become a half. Total amount of stockholder’s equity remains unchanged.

Answer 2

We have to compute the following caese,

A) If dividends were paid in the amount of $4,000,000 how much would the preferred shareholders and common stockholders receive assuming no dividends in the arrears?

Particulars	Share outstanding* per value*Rate of dividend	Total dividend
Dividend paid to preferred stock holder	(4000-1000)*50*10%	15,000
Dividend paid to common stock holder		3,985,000
Total dividend paid		15,000 +3985000 = 4,000,000

Therefore,

Preferred stockholder will be paid for current years dividends because no dividends are recorded in previous year.

B). Assuming the company has been in the arrears for two years, how much in dividends would the preferred shareholders and common shareholders receive if the company paid $8,000,000 in dividends this current year?

Dividend paid to preferred stock holder	Share outstanding*per value*Rate of dividend	Total dividend
Current year	3000*10%*50	15,000
Dividends for last year	3000*10%*2*50	30,000
Total		30,000+15,000 = 45,000
Dividend paid to common stockholder		7,955,000
Total dividend paid		7,955,000+45,000 = 8,000,000

Therefore,

Dividends for last two years are also paid in current year.

C). What is the dividend pay-out per share for both the common and preferred stock?

Particulars	Total dividend	Share out standing	Dividend payout per share
For situation(A):
Preferred stock	15,000	3,000	5
Common stock	3,985,000	52,000	76.63
For situation (B)
Preferred stock	45,000	3,0000	15
Common stock	7,955,000	52,000	152.98

D).   What would be the impact on the balance sheet if the company announced a 2-1 stock split on preferred stock?

on the off chance that organization declares 2-1 stock split on favored stock. number of extraordinary favored stock will be expanded by 3000 offers that implies after stock split aggregate number of remarkable favored will be 6000 and the estimation of offer will turn into a half of real cost. stock split does not influence asset report on the quantity of offer will be expanded and per share esteem will turn into a half of measure of investors value stays unaltered.

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