Description
Stockholders’ Equity Section of the Balance Sheet
Purpose of Assignment
The purpose of this assignment is to help you become familiar with examining the stockholders' equity section of the balance sheet.
Assignment Steps
Resources: Financial Accounting: Tools for Business Decision Making, Ch. 11
Answer the following questions in 1,050 words using the Lachlin Corporation Balance Sheet located on p. 575 of Financial Accounting:
- How many shares of common stock are outstanding?
- Assuming there is a stated value, what is the stated value of the common stock?
- What is the par value of the preferred stock?
- If the annual dividend on preferred stock is $36,000, what is the dividend rate on preferred stock?
- If dividends of $72,000 were in arrears on preferred stock, what would be the balance reported for retained earnings?
Use the Week 4 Excel® spreadsheet and submit with your answers.
Explanation & Answer
Attached.
Running Head: Financial Reporting
Financial Reporting
Name
Institutional Affiliation
Running Head: Financial Reporting
Par value of common stock
The par value of common stock is the stated value or face value of a company’s shares.
When shares are issued, they are based on the par value as the initial price. With a par value in
place, investors are always assured that the amount they are receiving is favorable and that no
one is receiving a higher amount than the right one. Common stocks can either be issued at par
or in excess of par. The par value is often found on the balance sheet. From the balance sheet of
Lachlin Corporation, the common stock is calculated as follows;
$2,900,000/80,000 = $36.25 per share of common stock
Par value of preferred stock
The par value of preferred stock is the base upon which the dividends on preferred stock
are stated as a percentage of. For that reason, it has some economic importance. For instance, if a
company issues 10% preferred stock with a par value of $1000, then dividends of $100 will be
given to the preferred stockholders. If it issues 9% preferred stock with a par value of $500 then
the preferred stockholders will receive $45 dividends. In both cases, the par value is the key
determinant for the dividends to be received by the preferred stockholders.
Preferred stockholders cannot receive more than the stated dividends. If they are 10%
preferred stock with a par value of $...