Q11-3

Q11-7

Q11-11

M11-23
Q11-3. What features make preferred stock similar to debt? Similar to common stock?
The preferred stocks features, such as preference on dividends and potential liquidations, substantially reduce risk to the
investor, and therefore reduce risk premiums attached to stock ownership as well. In that case, it tends to follow the market
interest rates more closely than ordinary stocks.

Q11-7. How does the account “additional paid-in capital” (APIC) arise? What inferences, if any, can you draw from the amount of
APIC as reported on the balance sheet relative to the common stock amount in relation to the financial condition of the company?
APIC is the difference between the par value and the market price at the time of issuance, multiplied by the quantity of shares
issued. Not much can be inferred from this amount, considering the par value is somewhat arbitrary and does not represent
market value of the firm. It simply represent the minimum amount of capital it would keep within the company at any given
time.

Q11-11. A corporation has total stockholders' equity of $3,471,000 and one class of $2 par value common stock. The corporation
has 375,000 shares authorized; 225,000 shares issued; 195,000 shares outstanding; and 30,000 shares as treasury stock. What is
its book value per share?
Common Stock, $2 par value, 375,000 Shares Authorized, 225,000 Issued, 195000 Outstanding 390,000
Additional Paid-In Capital 3,081,000

Book Value per Share = 17.8

M11-23. Identifying and Analyzing Financial Statement Effects of Stock Issuance and Repurchase (FSET)
On January 1, Bartow Company issues 3,000 shares of $100 par value preferred stock at $250 cash per share. On March 1, the
company repurchases 3,000 shares of previously issued $1 par value common stock at $78 cash per share.
Using the financial statement effects template, illustrate the financial statement effects of the stock issuance and repurchase.

Assets = Liabilities + Equity + + + + Revenue - Expenses

Notes Retained Preferred Common APIC Treasury Cost of Interest
Cash Non-Op Revenue
= payable + Earnings + Stock + Stock + - Stock + - Goods Sold Expense
Start = + + + + - + -
Jan-1 - Issues 3,000 shares of $100 par value
preferred stock at $250 cash per share 750,000 = + + 300,000 + + 450,000 - + -
March 1 - Repurchases 3,000 shares of
previously issued $1 par value common stock
at $78 cash per share (234,000) = + + + + - 234,000 + -
Closing Y1 516,000 = + + 300,000 + 0 + 450,000 - 234,000 + - 0
Balances at end of the year = + + + + - + -

A=L+E 516,000 516,000