accounting

Brief Exercise 11.1

Alpha Company
Stockholders Equity section of the Balance Sheet
Issued and outstanding common stock (10,000 * 10)
100,000
Additional paid-in capital (10,000 * 3)
30,000
Total paid-in capital
130,000
Retained Earnings
75,000
Total Stockholder Equity
205,000

Brief Exercise 11.2

Beta Company
Stockholders Equity section of the Balance Sheet
Issued and outstanding common stock (10,000 * 25)
250,000

Issued and outstanding preferred stock (10,000 * 100)
100,000
350,000
Additional paid-in capital:

Common stock (10,000 * 2)
20,000

Preferred stock (1,000 * 10)
10,000
30,000
Retained Earnings 100,000
Total Stockholder Equity 480,000

Brief Exercise 11.3

Dividends on the arrears on the preferred stock for 3 years is calculated as:

100,000 shares * $100 par value * 6% dividend rate * 3 years = $1,800,000

The amount of dividends in arrears must be disclosed in the financial statements. They are generally written in the notes section at the end of the financial statements. They can be formally included in the statement as a liability once they are declared by th board of directors of the company.

Brief Exercise 11.4

Dividend on 6% preferred stock:

10,000 shares * $100 par value * 6% dividend rate = $60,000

Total dividend declared by the company 200,000
Less: preferred dividend in arrears
60,000

Less: preferred dividend in current year
60,000

Total preferred dividend
120,000
120,000
Common stock dividend 80,000

Brief Exercise 11.6

Common Stock (100,000 shares @ $10 par value)
1,000,000
Additional paid-in capital on common stock
750,000
Retained Earnings
600,000
Total stockholders’ equity
2,350,000

Book value per share = Total stockholder equity / Outstanding common stock
= 2,350,000 / 100,000
= $23.50

Thus book value per share is $23.50. This is the price that is aid for these stocks. It does not change as long as the asset is