Question

Problem 11-26A Analyzing the stockholders' equity section of the balance sheet LO 11-2, 11-3, 11-7

The stockholders’ equity section of the balance sheet for Mann Equipment Co. at December 31, Year 1, is as follows

Stockholders’ Equity
Paid-in capital
Preferred stock, ? par value, 4% cumulative, 240,000 shares authorized, 54,000 shares issued and outstanding	$	540,000
Common stock, $30 stated value, 290,000 shares authorized, 54,000 shares issued and outstanding		1,620,000
Paid-in capital in excess of par—Preferred		44,000
Paid-in capital in excess of stated value—Common		108,000
Total paid-in capital					2,312,000
Retained earnings					390,000
Total stockholders’ equity				$	2,702,000

Note: The market value per share of the common stock is $56, and the market value per share of the preferred stock is $26.
Required
a. What is the par value per share of the preferred stock?
b. What is the dividend per share on the preferred stock? (Round your answer to 2 decimal places.)
c. What was the average issue price per share (price for which the stock was issued) of the common stock? (Round your answer to 2 decimal places.)
e. If Mann declares a 2-for-1 stock split on the common stock, how many shares will be outstanding after the split? What amount will be transferred from the retained earnings account because of the stock split? Theoretically, what will be the market price of the common stock immediately after the stock split?

Answer 1

1. PAR VALUE PER SHARE OF PREFFERED STOCK

SHARES ISSUED = 54000

AMOUNT IN PAID IN CAPITAL = 540000$

THE AMOUNT SHOWN IN PAID IN CAPITAL IS ALWAYS EQUAL TO THE PAR VALUE OF THE STOCK

THEREFORE PAR VALUE = 540000/54000

=

10 $

2. TOTAL DIVIDEND = (SHARES ISSUED * PAR VALUE) * RATE

=

(54000*10)*4%

21600

$

DIVIDEND PER SHARE = DIVIDEND/ NO. OF SHARES

=

21600/54000

0.4

3. AVERAGE ISSUE PRICE PER SHARE={ (NO OF SHARES * PAR VALUE )+ADDITIONAL PAID IN CAPITAL }/ NO. OF SHARES

=

{(54000*30)+108000}/54000

32$

4.STOCK SPLIT 2 FOR 1 = 54000*2

108000

SHARES

NO AMOUNT IS TRANSFERRED FROM RETAINED EARNINGS BECAUSE OF STOCK SPLIT AS STOCK SPLIT INCREASES THE AMOUNT OF STOCK OUTSTANDING

AND DECREASE THE STOCK VALUE.

THE PRICE OF STOCK BEFORE SPLIT WAS $26 . THE STOCK SPLITS 2 FOR 1 , THUS THE PRICE OF THE STOCK WILL BE HALVED , i.e. IT WILL BE 13 $.

THUS THE SHARES AND THE PRICE CHANGES BUT THE MARKET CAPITALISATION REMAINS SAME .