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1. Bower, Inc. began operations and all stock was issued on opening day of public trading. The financial statements at the end of the first year included the following:
| Preferred 6% Stock, $100 par value | $60,000 |
| Common Stock, $8 par value | 112,000 |
| Paid-in Capital in Excess of Par–Common | 64,400 |
| Retained Earnings | 86,700 |
What was the selling price per share of the common stock?
2. Denham, Inc. had 22,250 shares of $6 par common stock issued. At the end of the year 2005, the corporation had net income of $260,900. The board of directors declared a $5 cash dividend per share of common stock on the last day of 2005.
How much of the 2005 net income was retained by the corporation after the dividend?
3. The financial statements of Coastal, Inc. included the following on January 1, 2006:
| Preferred $6 Stock, $100 par | $250,000 |
| Common Stock, $5 par | 465,000 |
| Paid-in Capital in Excess of Par—Common | 116,250 |
| Retained Earnings | 978,652 |
The board of directors approved the annual cash dividend of $247,500 for both preferred and common stockholders. The dividend is payable to stockholders of record as of January 15, 2006 with payment on February 1, 2006. What is the amount of the dividend paid on each share of common stock?
For items 4 through 11 write TRUE if the statement is true; write FALSE if it is false.
4. If the corporation issues only one class of capital stock, it is called preferred stock.
5. Common stockholders have the right to vote and elect the board of directors.
6. Each share of common stock is entitled to two votes.
7. A common stockholder may send in a provost, which gives the stockholder’s voting rights to someone else.
8. Preferred stockholders are entitled to receive dividends before common stockholders.
9. Common stockholders are given preference over preferred stockholders to the assets of the corporation should it cease operations.
10. When a corporation receives permission from the state to operate, it is authorized to sell a certain number of shares of stock to investors; the maximum number of which is called its authorized capital stock.
11. Before a cash dividend can be declared, the corporation should have a sufficient amount of cash available to pay the dividend, but it does not matter what the balance of Retained Earnings is before the declaration.
The Balance Sheet of Happy Pets, Inc. as of December 31, 2003 included the following amounts:
| 8% Preferred Stock, $100 Par | $250,000 |
| Common Stock, $5 Par | 100,000 |
| Paid-In Capital in Excess of Par—Common | 140,000 |
| Retained Earnings | 565,000 |
Happy Pets, Inc. is authorized to issue 5,000 shares of $100 par, 8% preferred stock and 100,000 shares of $5 par common stock.
For questions 12 through 16, write the correct number or amount on your answer sheet.
12. How many shares of common stock have been issued?
13. Considering the fact that there has been only one issuance of common stock, at what price per share were the common shares sold?
14. How many shares of 8% Preferred Stock have been issued?
15. If the corporation pays preferred dividends on a quarterly basis, what would be the amount of the first quarter’s preferred stock dividend?
16. Disregard the information in the previous question and assume now that preferred stockholders are paid annually. Suppose that on November 15, 2004 the board of directors of Happy Pets, Inc. declared a total cash dividend to all shareholders of $49,000. What amount per share is available to common shareholders?
