The stockholders equity section of Erik Corporation at December 31 is as follows. ERIK CORPORATION Balance Sheet

Question:

The stockholders’ equity section of Erik Corporation at December 31 is as follows.

ERIK CORPORATION

Balance Sheet (partial)

Paid-in capital

Preferred stock, cumulative, 10,000 shares authorized, 6,000 shares issued

and outstanding…………………………………………………………. $ 300,000

Common stock, no par, 750,000 shares authorized, 600,000 shares issued……. 1,200,000

Total paid-in capital…………………………………………………….. 1,500,000

Retained earnings……………………………………………………………….. 1,858,000

Total paid-in capital and retained earnings……………………………... 3,358,000

Less: Treasury stock (10,000 common shares)…………………………………… (64,000)

Total stockholders’ equity……………………………………….…….. $3,294,000

Instructions

From a review of the stockholders’ equity section, as chief accountant, write a memo to the president of the company answering the following questions.

(a) How many shares of common stock are outstanding?

(b) Assuming there is a stated value, what is the stated value of the common stock?

(d) If the annual dividend on preferred stock is $30,000, what is the dividend rate on preferred stock?

(e) If dividends of $60,000 were in arrears on preferred stock, what would be the balance in Retained Earnings?

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... 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... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... 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,...