Early in 2015, Searfoss, Inc., was organized with authorization to issue 2,000 shares of $100 par value

Question:

Early in 2015, Searfoss, Inc., was organized with authorization to issue 2,000 shares of $100 par value preferred stock and 300,000 shares of $1 par value common stock. Five hundred shares of the preferred stock were issued at par, and 80,000 shares of common stock were sold at $15 per share. The preferred stock pays a 10 percent cumulative dividend.
During the first four years of operations (2015 through 2018), the corporation earned a total of $1,950,000 and paid dividends of 40 cents per share in each year on its outstanding common stock.
Instructions
a. Prepare the stockholders' equity section of the balance sheet at December 31, 2018. Include a supporting schedule showing your computation of the amount of retained earnings reported. Assume the call price of preferred stock is $110 per share as of December 31, 2018.
b. Are there any dividends in arrears on the company's preferred stock at December 31, 2018? Explain your answer.
c. Assume that interest rates increase steadily from 2015 through 2018. Would you expect the market price of the company's preferred stock to be higher or lower than its call price of $110 at December 21, 2018? (The call price is the amount the company must pay to repurchase the shares from the stockholders.)
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...
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Financial and Managerial Accounting the basis for business decisions

ISBN: 978-1259692406

18th edition

Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello

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