20 Minutes, Easy
b.
Stockholders’ equity
100,000 shares, issued and outstanding 4,000 shares 400,000$
5% cumulative preferred stock, $100 par, authorized
PROBLEM 11.4B
MARKUP, INC.
December 31, 20xx
Partial Balance Sheet
MARKUP, INC. (concluded)
Common stock, $1 par, authorized 100,000 shares,
*Computation of retained earnings at December 31, 20xx:
Retained earnings at January 1, 20xx
Add: Net income in 20xx
35 Minutes, Strong
a. Par value of all preferred stock outstanding 4,400,000$
100$
44,000
b. Dividend requirement per share of preferred stock (10% x $100) 10$
e. 4,400,000$
3,400,000
7,800,000$
f. 7,800,000$
6,800,000$
Donated capital 400,000
15,000,000$
g. Total stockholders’ equity 18,160,000$
h. Retained earnings, beginning of the year 1,200,000$
Total legal capital (e)
Total paid-in capital
Par value of preferred stock
Par value of common stock
Add: Additional paid-in capital: Common stock
Par value per share of preferred stock
Number of shares of preferred stock outstanding ($4,400,000 ÷ $100)
PROBLEM 11.5B
MIRROR, INC.
Annual preferred stock dividend requirement ($10 x 44,000 shares) 440,000$
c. 3,400,000$
Number of shares of common stock outstanding ($3,400,000 ÷ $2 per share) 1,700,000
Total issuance price of all common stock 10,200,000$
Number of shares of common stock issued (c) 1,700,000
Average issuance price per share of common ($10,200,000 ÷ 1,700,000 shares)
Par value per share of common stock
Par value of all common stock outstanding
Par value of all common stock issued
Number of shares of preferred stock outstanding (a)
35 Minutes, Medium
In Thousands
(Except for Per
Share Amounts)
a. Par value of all common stock outstanding 9,600$
Par value per share 3$
Number of shares outstanding ($9,600/$3) 3,200
b. Dividend requirement per share of preferred stock 10$
Numbers of shares of preferred stock outstanding 250
PROBLEM 11.6B
TIMBERLAKE CORPORATION
Annual dividends paid to preferred stockholders ($10 x 250) 2,500$
Additional paid-in capital 76,800
Total paid-in capital 136,400$
Less: Preferred stock par value = ($200 x 250 shares) 50,000
Number of shares of common stock outstanding 3,200
e.
f.
g.
PROBLEM 11.6B
TIMBERLAKE CORPORATION (concluded)
The term convertible means that at the option of the preferred stockholder, each preferred
share can be converted into a specified number of common shares. To evaluate the value of
At $190 per share, Timberlake’s preferred has a dividend yield of 5.26% ($10 ÷ $190). In
The basic advantage of being publicly owned is that the corporation has the opportunity to
raise large amounts of equity capital from many investors. Some publicly owned
15 Minutes, Easy
a.
b.
PROBLEM 11.7B
WHITAKER VIDEO
Par value is the legal capital per share—the amount by which stockholders’ equity cannot
be reduced except by losses. Thus, par value may be viewed as a minimum cushion of
equity capital existing for the protection of creditors.
Whitaker Video’s par value—five cents per share—is quite low. However, the corporation
can set par value at any level that it chooses; the amount of par value has no direct effect
upon either book value or market value. It does mean, however, that the amount of the
15 Minutes, Medium
Stockholders’ equity:
Common stock, $3 par, 50,000 shares authorized, issued, and 150,000$
outstanding
Additional paid-in capital: Common stock 350,000
c.
The treasury stock purchase of $30,000 in 2017 was reported as a financing cash outflow in the
PROBLEM 11.8B
a. TEEK CORPORATION
December 31, 2018
Partial Balance Sheet
TEEK CORPORATION
30 Minutes, Strong
a. LAIRD INDUSTRIES
Partial Balance Sheet
December 31, 2018
Stockholders’ equity:
6% preferred stock, $100 par, cumulative, authorized and
issued and outstanding 10,000 shares 1,000,000$
*Computation of additional paid-in capital on treasury stock:
Purchase price per share: $40,000 ÷ 1,000 shares = $40
per share
Reissue price per share: $30,000 ÷ 600 shares = $50
per share
($10 per share x 600 shares reissued)
c.
Had the company decided to split its common stock 2-for-1 on December 31, 2018, the market
PROBLEM 11.9B
LAIRD INDUSTRIES
treasury 1,600,000
Additional paid-in capital: Common stock 1,200,000
15 Minutes, Medium
a.
b.
c.
The market price of the 7%, $100 par value convertible preferred stock should rise
approximately in proportion to the increase in the market value of the common stock. This
The market price of the 10%, $100 par value preferred stock may be expected to decline
SOLUTIONS TO CRITICAL THINKING CASES
FACTORS AFFECTING THE MARKET PRICES
CASE 11.1
If SciFi’s profitability increases dramatically, the market price of its common stock probably
OF PREFERRED AND COMMON STOCKS
25 Minutes, Strong
OF COMMON STOCKS
a.
b.
c.
CASE 11.2
The visit by the Federal Drug Administration signaled to the market that Ventitex may be having
The value of a share of common stock is based on investors’ expectations about future earnings and cash
flows of the business. The increase in the price of the shares of McDonnell Douglas resulted from an
The fall in the price of Citicorp’s common stock probably is impacted by the increase in the discount
FACTORS AFFECTING THE MARKET PRICES
Group assignment:
No time estimate
CASE 11.3
SELECTING A FORM OF ORGANIZATION
We do not provide comprehensive solutions for group problems that involve interviews. But the
following items normally come to light in our classes.
• Students may find that many people entered a business without giving much thought to the
form of entity.
20 Minutes, Medium
(a)
(b)
(d)
•
•
•
•
•
•
Find out where the stock trades
Always be skeptical
Independently verify the claims that are made about the stock
Research the investment opportunity
Watch out for high-pressure pitches to invest
The S.E.C. suggests investors consider the following to avoid such schemes:
Consider the source
Investment Management
Trading and Markets
A pump & dump scheme works as follows. A company’s web site may feature a glowing
CASE 11.4
S.E.C. ENFORCEMENT DIVISION
Corporate Finance
The Division of Enforcement investigates possible violations of securities laws, recommends
ETHICS, FRAUD & CORPORATE GOVERNANCE
The divisions of the Securities and Exchange Commission are:
30 Minutes, Easy
a.
b.
[NOTE: The numbers in parts b. and c. will vary depending on the most recent
balance used to answer these questions.]
EXAMINING STOCKHOLDERS’ EQUITY
CASE 11.5
The company’s balance sheet dated January 31, 2015, reports that five million shares of $0.01
The company has one classification of common stock:
INTERNET