FIN.+MANAG.ACCT.CH.1-24 W/CONNECT PKG
FIN.+MANAG.ACCT.CH.1-24 W/CONNECT PKG
6th Edition
ISBN: 9781259682728
Author: Wild
Publisher: MCG CUSTOM
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Chapter 11, Problem 5PSA
To determine

Preferred Stock:

Preferred stock is a sort of stockholder‘s capital which has special right as comparison to equity to shareholder, like fixed dividend and preferential treatment in event of liquidation and payment of dividend.

Common Stock:

It shows the total amount of money that the owner has in this business. Owner use their right of being owner by voting for important matters in the general meetings of the company.

Dividends:

It is the amount of profit that is distributed among shareholders of the company. It can be distributed in two ways, one is cash dividend and other is stock dividend.

Market Value per Share:

It is the value of the share of the company in the market or in the stock exchange in which the company is listed.

(1)

To compute:

Market value of share.

Expert Solution
Check Mark

Explanation of Solution

Market value of share

Formula for market value of share:

Marketvalueofcommonstock=(Totalnumberofshares×Marketpriceofshare)

Given,

Total number of shares is 4,000.

Market price of share is $85.

Substitute, 4,000 for total number of shares and $85 for market price of share in the above formula,

MarketValueofCommonStock=4,000×$85=$340,000

Hence, the market value of common stock is $340,000.

To determine

(2)

To compute:

Par value of common stock and preferred stock.

Expert Solution
Check Mark

Explanation of Solution

Par value of share

Formula for par value of stock:

Parvalueofstock=StockNumberofoutstandingshares

Common stock:

Given,

Common stock is $80,000.

Number of outstanding shares is 4,000.

Substitute, $80,000 for common stock and 4,000 for number of outstanding shares in the above formula,

Parvalueofcommonstock=$80,0004,000=$20

Hence, the par value of common stock is $20.

Preferred stock:

Given,

Preferred stock is $50,000.

Number of outstanding shares is 1,000.

Substitute, $80,000 for preferred stock and 1,000 for number of outstanding shares in the above formula,

Parvalueofpreferredstock=$50,0001,000=$50

Hence, the par value of preferred stock is $50.

To determine

(3)

To compute:

Book value of common stock with no arrears.

Expert Solution
Check Mark

Explanation of Solution

Book value:

Formula for book value of common stock:

Bookvaluepershare=Stockholders'equityPreferredstockNumberofcommonshares

Given,

Stockholder‘s equity is $280,000.

Preferred stock is $50,000.

Number of common shares is 4,000.

Substitute, $280,000 for stockholder‘s equity,$50,000 for preferred stock and 4,000 for number of common share in the above formula,

Bookvalueparshare=$280,000$50,0004,000=$57.50

Hence, the market value of common stock is $57.50.

To determine

(4)

To compute:

Book value of common stock with arrears.

Expert Solution
Check Mark

Explanation of Solution

Book value:

Formula for book value of common stock:

Bookvaluepershare=Stockholders'equityPreferredstockNumberofcommonshares

Given,

Stockholder‘s equity is $275,000.

Preferred stock is $50,000.

Number of common shares is 4,000.

Substitute, $275,000 for stockholder‘s equity,$50,000 for preferred stock and 4,000 for number of common share in the above formula,

Bookvalueparshare=$275,000$50,0004,000=$56.25

Hence, the market value of common stock is $56.25.

Working Notes:

Calculation for stockholder‘s equity:

Totalstockholder'sequity=Stockholder'sequityPreferreddividend=$280,000$5,000=$275,000

Preferreddividend=Preferredstock×Rateofinterest×Numberofyears=$50,000×5100×2=$5,000

To determine

(5)

To compute:

Dividend paid to preferred and common shareholders and dividend per share for common stock.

Expert Solution
Check Mark

Explanation of Solution

Preferred dividend:

Formula for preferred dividend:

Preferreddividend=Preferredstock×Rateofinterest×Numberofyears

Given,

Preferred stock is $50,000.

Rate of interest is 5%.

Number of years is 3.

Substitute, $50,000 for preferred stock, 5% for rate of interest and 4 for number of years in the above formula,

Preferreddividend=$50,000×5100×3=$7,500

Hence, the preferred dividend is $7,500.

Formula for common stock dividend:

CommonStockdividend=TotaldividendPreferreddividend

Given,

Preferred dividend is $7,500.

Total dividend is $11,500.

Substitute, $7,500 for preferred dividend and $11,500 for total dividend in the above formula,

Commonstockdividend=$11,500$7,500=$4,000

Hence, the common stock dividend is $4,000.

Formula for dividend per share:

Dividendpershare=TotaldividendNumberofoutstandingshares

Given,

Total dividend is $4,000.

Number of outstanding shares is 4,000.

Substitute, $4,000 for total dividend and 4,000 for number of outstanding shares in the above formula,

Dividendpershare=$4,0004,000=$1

Hence, the market value of common stock is $1.

To determine

(6)

To explain:

Reasons that contribute to difference between market and book value of share.

Expert Solution
Check Mark

Explanation of Solution

Reasons for the difference between market and book value are:

  • Assets and liabilities are recorded at historical cost and not on market value.
  • Book value show the price of share according to the books of the company but market value is determined by the demand or supply of that particular stock.

Hence, the reason is demand and supply and historical concept followed for accounting.

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Chapter 11 Solutions

FIN.+MANAG.ACCT.CH.1-24 W/CONNECT PKG

Ch. 11 - List the general rights of common stockholders.Ch. 11 - Prob. 7DQCh. 11 - Prob. 8DQCh. 11 - Prob. 9DQCh. 11 - Prob. 10DQCh. 11 - Prob. 11DQCh. 11 - Prob. 12DQCh. 11 - Prob. 13DQCh. 11 - Prob. 14DQCh. 11 - Prob. 15DQCh. 11 - Prob. 16DQCh. 11 - Prob. 17DQCh. 11 - Prob. 18DQCh. 11 - Prob. 19DQCh. 11 - Prob. 20DQCh. 11 - Prob. 21DQCh. 11 - Prob. 22DQCh. 11 - Prob. 1QSCh. 11 - Prob. 2QSCh. 11 - Prob. 3QSCh. 11 - Prob. 4QSCh. 11 - Prob. 5QSCh. 11 - Prob. 6QSCh. 11 - Prob. 7QSCh. 11 - Prob. 8QSCh. 11 - Prob. 9QSCh. 11 - Prob. 10QSCh. 11 - Prob. 11QSCh. 11 - Prob. 12QSCh. 11 - Prob. 13QSCh. 11 - Prob. 14QSCh. 11 - QS 11-15 Basic earnings per share A1 Epic company...Ch. 11 - Prob. 16QSCh. 11 - Prob. 17QSCh. 11 - Prob. 18QSCh. 11 - Prob. 19QSCh. 11 - Prob. 1ECh. 11 - Prob. 2ECh. 11 - Prob. 3ECh. 11 - Prob. 4ECh. 11 - Prob. 5ECh. 11 - Prob. 6ECh. 11 - Exercise 11–7 Identifying characteristics of...Ch. 11 - Prob. 8ECh. 11 - Prob. 9ECh. 11 - Prob. 10ECh. 11 - Prob. 11ECh. 11 - Prob. 12ECh. 11 - Prob. 13ECh. 11 - Prob. 14ECh. 11 - Prob. 15ECh. 11 - Prob. 16ECh. 11 - Prob. 17ECh. 11 - Prob. 18ECh. 11 - Prob. 1PSACh. 11 - Prob. 2PSACh. 11 - Prob. 3PSACh. 11 - Prob. 4PSACh. 11 - Prob. 5PSACh. 11 - Prob. 1PSBCh. 11 - Prob. 2PSBCh. 11 - Prob. 3PSBCh. 11 - Prob. 4PSBCh. 11 - Prob. 5PSBCh. 11 - Prob. 11SPCh. 11 - Prob. 1GLPCh. 11 - Prob. 2GLPCh. 11 - Prob. 1BTNCh. 11 - Prob. 2BTNCh. 11 - Prob. 3BTNCh. 11 - Prob. 4BTNCh. 11 - Prob. 5BTNCh. 11 - Prob. 6BTNCh. 11 - Prob. 7BTNCh. 11 - Prob. 8BTNCh. 11 - Prob. 9BTN
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