BUS $621-$ Case Study Week $5$

General

There are two parts to this case study. The first part is about a specific company, and you are required to prepare parts of their financial statements and perform some analysis of their equity. For the first part of the Case Study, you should use the Excel template provided for your responses.

The second part of the Case Study is a written response to various general questions $($unrelated to the first part above$)$ about equity. See more details below for both parts of the Case Study. You should complete the case study with your group and submit it in the Engage dropbox.

Case Study $-$ Part $1$

Jaime Hughes organized Hughes Enterprises, Inc., in January $2020.$ The corporation immediately issued at $$15$ per share on half of its $800,000$ authorized shares of $$2$ par value common stock. On January $2,2021,$ the corporation sold at par value the entire $7,500$ authorized shares of $8$ percent, $$22$ par value cumulative preferred stock. On January $2,2022,$ the company again needed capital and issued $5,500$ shares of an authorized $30,000$ shares of no$-$par cumulative preferred stock for a total of $$478,500.$ The no$-$par shares have a stated dividend of $$9$ per share.

The company declared no dividends in $2020$ and $2021.$ At the end of $2021,$ its retained earnings were $$415,000.$ During $2022$ and $2023$ combined, the company earned a total net income of $$963,500.$ Dividends of $1\mathrm{.}10$ cents per share in $2022$ and $$1\mathrm{.}45$ per share in $2023$ were paid on common stock.

Required:

$1.$ Prepare the stockholders$$ equity section of the balance sheet on December $31,2023.$ Include a supporting schedule showing your computation of retained earnings at the balance sheet date. Space has been provided in the Excel template for these computations. Ensure that your partial balance sheet is labeled correctly and uses the correct format and descriptions for the stockholders$$ equity section of the balance sheet.

$2.$ Assume that on January $2,2021,$ the corporation could have borrowed $$165,000$ at $10$ percent interest on a long$-$term basis instead of issuing the $7,500$ shares of the $$22$ par value cumulative preferred stock. Identify two reasons a corporation may choose to issue cumulative preferred stock rather than finance operations with long$-$term debt.

Answer Format:

You will be required to use the Week $5$ Case Study Template that has been included on the Case Study page in Engage. The template is an Excel spreadsheet and has been set up for ease of completion and grading.

Grading:

Your response will be graded based on the accuracy of the calculations, descriptions and formatting of the partial balance sheet. You need to have the correct descriptions on the face of the balance sheet for the stockholders$$ equity section. You need to show your work and computations within excel. Use the formula functions within Excel for addition, subtraction, multiplication, and division computations. I should be able to follow your calculations by clicking in any of the cells. If you do not show your work, you will receive a ZERO on the assignment. You can refer to the video in Engage on the Case Study page in week $5$ for additional information on how to show your work in excel. Showing your work does not mean typing each individual formula. You need to use the appropriate formula functions within Excel. Any written responses will be graded based on your ability to fully answer the question concisely, and without any spelling or grammatical errors $($you should use spell check in Excel$).$

Case Study $$ Part $2$

Below is a series of questions about equity for a publicly owned company described below. You are required to answer each question. Ensure that your response is concise and conveys that you have a full understanding of the material. Your written responses should be in a separate Word document. Corliss Corporation is a publicly owned company. The following information is taken from a recent balance sheet. Dollar amounts $($except for per$-$share amounts$)$ are stated in thousands.

Stockholders$$ Equity

Convertible $$12$ preferred stock, no par value, $1,400,000$ shares authorized, $225,000$ shares issued and outstanding, $$145$ per share liquidation preference

$$315,000$

Common stock, $$2$ par value, $90,000,000$ shares authorized

$210,000$

Additional paid$-$in capital

$730,500$

Retained earnings

$312,500$

Total stockholders$$ equity

$$1,568,000$

Required:

From the information above, answer the following questions $($show$/$describe calculations as appropriate$).$

How many shares of common stock have been issued?

What is the total amount of the annual dividends paid to preferred stockholders?

What is the total of paid$-$in capital?

What is the book value per share of common stock assuming no dividends and arrears?

Explain the advantages and disadvantages to Corliss Corporation of being publicly owned rather than operating as a closely held corporation.

What is meant by the term convertible used in the capital of preferred stock might yield less than another.