Question

[The following information applies to the questions displayed below.]

The stockholders’ equity section of Velcro World is presented here.

VELCRO WORLD Balance Sheet (partial)
($ and shares in thousands)
Stockholders' equity:
Preferred stock, $1 par value	$	5,900
Common stock, $1 par value		29,000
Additional paid-in capital		1,095,200
Total paid-in capital		1,130,100
Retained earnings		287,000
Treasury stock, 10,000 common shares		(310,000)
Total stockholders' equity	$	1,107,100

Based on the stockholders' equity section of Velcro World, answer the following questions. Remember that all amounts are presented in thousands.

1. How many shares of preferred stock have been issued? (Enter you answer in total number of shares, not in thousands.)

2. How many shares of common stock have been issued? (Enter you answer in total number of shares, not in thousands.)

3. If the common shares were issued at $29 per share, at what average price per share were the preferred shares issued?

4. If retained earnings at the beginning of the period was $249 million and $29 million was paid in dividends during the year, what was the net income for the year? (Enter your answer in million (i.e., 5,000,000 should be entered as 5).)

Answer 1

Answer of Part 1:

No. of Shares = (Preferred Capital / Value per shares) *1000
No. of Shares = ($5,900 / $1) *1,000
No. of Shares = 5,900,000 shares

Answer of Part 2:

No. of Shares= (Common Stock capital / Value per stock) *1,000
No. of Shares = ($29,000 / $1) *1,000
No. of Shares = 29,000,000

Answer of Part 3:

Total paid up-in-capital for Common Stock = No. of Shares * Price of shares
Total paid up-in-capital for Common Stock = 29,000 * $29
Total paid up-in-capital for Common Stock = $841,000

Total paid up-in-capital for Preferred Stock = Total paid-in-capital - Total paid up-in-capital for Common Stock
Total paid up-in-capital for Preferred Stock =$ 1,130,100 – $841,000
Total paid up-in-capital for Preferred Stock = $289,100

Price per shares of Preferred = Total paid up-in-capital for Preferred Stock / No. of Preferred shares
Price per shares of Preferred = $289,100 / 5,900
Price per shares of Preferred = $49

Answer of Part 4:

Ending Retained Earning = Beginning Retained Earning – Dividend + Net Income
287 = 249 – 29 + Net Income
287 = 220 + Net Income
Net Income = 287 – 220
Net Income =$67 million