Question

AT&T Wireless Services was once one of the largest wireless communication—think “cell phones”—service providers in the United States. Information from its annual report to shareholders follows:


The company’s (nonredeemable) preferred stock pays dividends at the rate of 8% annually.

Required:
1. Suppose that the increase in the preferred stock account was due to the issuance of new preferred shares at par on January 1, Year 2. What journal entry would the company make on the date to record the new preferred stock?
2. What journal entry would the company make to record preferred dividends for Year 2 and for Year 1?
3. Suppose that AT&T Wireless had issued 8% debt (at par) rather than any preferred stock. What general journal entry would the company make to record interest on the debt for Year 2 and for Year 1?
4. Compute the company’s long-term debt-to-total-equity ratio and its interest coverage ratio for Year 2 and Year 1 as if AT&T Wireless had issued 8% debt rather than preferred stock.
5. Lenders generally do not restrict a company’s ability to raise more equity capital. That’s because the dollars raised from selling stock provide a cash cushion that protects the lender’s debt claim. Under what conditions might lenders want to limit a company’s ability to issue preferred stock?
6. How would the preferred stock be shown on the company’s balance sheet if the shares contained a mandatory redemptionfeature?


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  • CreatedSeptember 10, 2014
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