
a)
Identify the par value per share of the
a)

Explanation of Solution
Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred to as preferred stock.
Identify the par value per share of the preferred stock:
Therefore, the par value per share of the preferred stock is $10.
b)
Calculate the dividend per share on the preferred stock.
b)

Explanation of Solution
Dividends: Dividends are the rewards to the stockholders for investing their money in the company. Payment of dividend depends upon the decision of the management.
Calculate the dividend per share on the preferred stock:
Therefore, the dividend per share on the preferred stock is $0.50 per share.
c)
Identify the number of common stock shares outstanding.
c)

Explanation of Solution
Common stock: Common stock is the cash raised by the company by issuing common or ordinary shares to the stockholders. This is an investment for the shareholders for which they receive the dividends from the issuing company, and have voting rights.
Calculate the number of common stock shares outstanding:
Therefore, the number of common stock shares outstanding is 38,000.
d)
Identify the average issue price of the common stock.
d)

Explanation of Solution
Common stock: Common stock is the cash raised by the company by issuing common or ordinary shares to the stockholders. This is an investment for the shareholders for which they receive the dividends from the issuing company, and have voting rights.
Identify the average issue price per share of the common stock:
Therefore, the average issue price per share of the common stock is $22.50 per share.
Working Note 1: Calculate the value of common stock.
e)
Explain the difference between the issue price and the market price of the common stock.
e)

Explanation of Solution
The average issue price is less by $17.50
- When the investor’s expects the company to perform better in future.
- Change in the economic situations will make the share price of the company to increase.
f)
Identify the number of shares that will be outstanding after the stock split, calculate the amount that will be transferred from the
f)

Explanation of Solution
Identify the number of shares that will be outstanding after the stock split:
Therefore, 76,000 shares will be outstanding after the stock split.
Working Note 2: Calculate the number of shares outstanding:
Calculate the amount that will be transferred from the retained earnings account because of the stock split:
No amount will be transferred from the retained earnings account because of the stock split.
Identify the market price of the common stock immediately after the stock split:
Therefore, the market price of the common stock immediately after the stock split is $20.
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Chapter 8 Solutions
Survey Of Accounting
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