Question

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Sailors Incorporation. a freight forwarder, a well-established company. The owner of the company Jack is interested in drawing certain figures regarding the performance of the company.
The following accounts and their balances were extracted of the Sailors Inc., a freight forwarder, at December 31, 2009 the end of current fiscal year:
Rs.
3% cumulative preferred stock, Rs.100 par value 15, 00,000
Paid in capital in excess of par (preferred stock) 1, 80,000
Common stock Rs.10 par 6, 75,000
Paid in capital in excess of par (common stock) 1, 25,000
Retained earnings 21, 06,500
There are 5, 00,000 shares authorized for common stock 67,500 shares issued ,and 50,000 shares authorized for cumulative preferred stock 15, 000 shares issued.

Required:
Use the above information to answer questions from (a) to (e). Follow all the steps for calculation
a) If company declared total cash dividend of $70,000. Calculate dividend per share of preferred stock as well as common stock
b) If company declared stock dividend of 10% when market value was Rs. 12. Calculate total monetary value of such dividend.
c) If company earned net income of Rs.5, 00,000. Calculate EPS.
d) Prepare stock holders equity section of balance sheet December 31, 2009.
e) Calculate Book value/share of common stock. Company did not declare dividend for 1 full year

Answer 1

a.	Rs.	No.of shares	Dividend/share
Total dividend declared	70000
Preferred dividend(1500000*3%)	45000	1500000/100=	15000	3	(Answer)
Balance, common stock dividends(70000-45000)	25000	675000/10=	67500	0.37	(Answer)

b.Monetary value of the stock dividend when market value is   Rs.12

(% stock dividend*current no.of common shares o/s*Market value per share

ie.(10%*67500*12)=

81000

(in Rs.)(Answer)

c.EPS = (Net Income-Preference dividends)/No.of common shares o/s

ie. (500000-45000)/(67500+6750)=

6.13

(in Rs.)(Answer)

d.Balance sheet as at December 31, 2009
Stock holders equity
Authorised
Common stock ,Rs 10 par value, 500000 shares
3% cumulative preferred stock, Rs.100 par value, 50000 shares
Issued & outstanding:
3% cumulative preferred stock, Rs.100 par value	1500000
Paid in capital in excess of par (preferred stock)	180000	1680000
Common stock,Rs.10 par value	742500
Paid in capital in excess of par (common stock)	138500	881000	2561000
Retained earnings			2455500
Total Stock holders equity			5016500
NOTE:
Common stock, par=(67500+6750)*10= 742500
Paid in capital in excess of par (common stock) =125000+(6750*2)= 138500
Retained earnings
2106500+500000-70000-(6750*12)=
1955500

e)Book value/share of common stock. Company did not declare dividend for 1 full year

so, no cash dividend or stock dividend

BV=Total equity/No.of common shares

so, equity total will be (Par value+APIC+Beg.Ret./Earn.+Net Income)

675000+125000+2106500+500000=

3406500

no.of common shares is 67500

so, BVper share=3406500/67500=

50.47