Question

Soltech Company’s common stock is currently selling on a stock exchange at $90 per share, and its current balance sheet shows the following stockholders’ equity section. Preferred stock—8% cumulative, $___ par value, 1,500 shares authorized, issued, and outstanding ................................... $ 375,000 Common stock—$___ par value, 18,000 shares authorized, issued, and outstanding ................................... 900,000 Retained earnings .................................................... 1,125,000 Total stockholders’ equity .............................................. $2,400,000 C2 A4 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 is the book value per share of common stock? (Round per share value to the nearest cent.) 4. If two years’ preferred dividends are in arrears, what is the book value per share of common stock? (Round per share value to the nearest cent.) 5. If two years’ preferred dividends are in arrears and the board of directors declares cash dividends of $100,000, 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? (Round per share value to the Check (4) Book value of common, $109.17 common share, $0.56

Answer 1

1. Current market value of the corporation's common stock = $90.

2. Par value of the Corporation's Preferred stock = 375,000 / 1,500

= $250.

Par value of the Corporation's Common stock = 900,000 / 18,000

= $50.

3. Book Value per share of the Corporation's Common stock = (900,000 + 1,125,000) / 18,000

= 2,025,000 / 18,000

= $112.50.

4. Retained earnings belonging to common stock holders = (1,125,000 - (2 * 375,000 * 8/100))

= 1,125,000 - 60,000

= $1,065,000

Now, book value of the common stock = (1,065,000 + 900,000) / 18,000

= 1,965,000 / 18,000

= $109.167.

= $109.17.

5. Total amount of dividends payable to Preferred stock holders = Dividends in arrears + Current year dividends

= 60,000 + (375,000 * 8%)

= 60,000 + 30,000

= $90,000

Cash dividends available to common stock holders = 100,000 - 90,000

= $10,000

Amount of dividens per share of the common stock = 10,000 / 18,000

= $0.555

= $0.56.