EQUITY PROBLEMQUESTIONSSUMMER Group – Equity QuestionSUMMER Group has the following items in its...

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EQUITY PROBLEMQUESTIONSSUMMER Group – Equity QuestionSUMMER Group has the following items in its equity section of the balance sheet:Common Stock 5,000,000 shares authorized, 1,200,000 issued         $6,000,000Capital Surplus                                                                                        $3,600,000Treasury Stock on Common   100,000 shares                                     $1,320,000Cumulative Prefeed Stock 17,000,000 authorized {8%} $2 par  $12,000,000Treasury Stock on Prefeed Stock  250,000 shares             $5,000,000Retained Earnings                                                                               $30,180,0001. SUMMER Group wishes to announce a total cash dividend of $4,000,000.  How is this dividend to be divided between the common and prefeed stockholders?2. SUMMER Group was four years in the aears in paying dividends to the prefeed stockholders.  In the cuent announcement to all shareholders, SUMMER Group revealed that the company’s total dividend payout this would be $10,000,000.  If this is the case, then what is the total dollar amount of dividends for prefeed shareholders and common shareholders?3. How many shares of SUMMER Group common stock are outstanding?4. How many shares of SUMMER Group prefeed stock are outstanding? 5. What was the average selling price of SUMMER Group’s common stock shares Listed on the cuent balance sheet?6. What was the average selling price of SUMMER Group’s prefeed stock shares listed on the cuent balance sheet?7. If SUMMER Group announces a 4 for 1 stock split of the cumulative prefeed, then what is the new total amount of the prefeed stock?8. If SUMMER Group were to provide for a 10% common stock dividend, then how many new shares are to be mailed to existing common stock shareholders?9. Assume in question [8] the market price of the common stock was $26 at the time of the stock dividend announcement. What is the journal entry to record the stock dividend?10. What is total dollar amount of equity per the items listed on the cuent balance listed on the top of this page?Problem 2:  SPRING INC.  BONDS    SPRING Inc. is short on cash and wishes to offer a 20 year $5,000,000,000 bond with a 6% contract rate of interest. Unfortunately for SPRING Inc., the cuent market rate for bonds of this magnitude is around an average of 10%. Interest of course is paid semi-annually.  Please the following questions regarding SPRING’s bond offering.1.  Calculate the cash proceeds of SPRING’s bond offering?2. What is the total amount of interest paid in cash each year?3. What is the total amount of interest paid over the life of the bonds?4.  What is the amount of interest charged during the first full year that the bonds were outstanding?5. If SPRING wanted to pay off the bonds at the end of the first year, it is estimated the company would have to write a check for $5,500,000,000.  Provide the complete Journal Entry for such a transaction.6.  Economists have forecasted the market rate of interest to decrease in a short period of time.  In fact, as low as 4%, and SPRING wishes for you calculate the cash proceeds of the bond offering if the market rate of interest is 4%.7.  What is the initial journal entry to record this second bond fact pattern?8.  What is the total interest paid for each year on this second bond fact pattern?9.  What is the total interest listed as an expense on SPRING’s income statement?10.  Explain the following concept:  As rate of interest rises bond prices fall and when rates of interest decrease bond prices rise?We shall ignore risk factors in the question.

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EQUITY PROBLEM
QUESTIONS
SUMMER Group – Equity Question
SUMMER Group has the following items in its equity section of the balance sheet:
Common Stock 5,000,000 shares authorized, 1,200,000 issued         $6,000,000
Capital Surplus                                                                               	     $3,600,000
Treasury Stock on Common   100,000 shares                                     $1,320,000
Cumulative Preferred Stock 17,000,000 authorized {8%} $2 par  $12,000,000
Treasury Stock on Preferred Stock  250,000 shares		     $5,000,000
Retained Earnings                                                                               $30,180,000
1. SUMMER Group wishes to announce a total cash dividend of $4,000,000.  How is this dividend to be divided between the common and preferred stockholders?
 Ans – Total Preference stock outstanding = $12,000,000/$2 minus 250,000 treasury preferred stock.
                                                                    = 6,000,000-250,000 = 5,750,000 shares
Preferred dividend = 5,750,000 * $2 * 8% = $920,000
Common Stock dividend = $4,000,000 minus $920,000 = $3,080,000
2. SUMMER Group was four years in the arrears in paying dividends to the preferred stockholders.  In the current announcement to all shareholders, SUMMER Group revealed that the company’s total dividend payout this would be $10,000,000.  If this is the case, then what is the total dollar amount of dividends for preferred shareholders and common shareholders?
Ans – Preference Stock outstanding = 5,750,000 shares
 Preference Stock dividend for 4 years in arrears = 5,750,000*$2*8%*4 = $3,680,000
Therefore common stock dividend = $10,000,000 minus $3,680,000 = $6,320,000
3. How many shares of SUMMER Group common stock are outstanding?
Ans – Common Stock Outstanding = Issues Shares minus Treasury Stock
                                                         = 1,200,000 – 100,000 = 1,100,000 shares
4. How many shares of SUMMER Group preferred stock are outstanding? 
Ans - Total Preference stock outstanding = $12,000,000/$2 minus 250,000 treasury preferred stock.
                                                                    = 6,000,000-250,000 = 5,750,000 shares
5. What was the average selling price of SUMMER Group’s common stock shares Listed on the current balance sheet?
Ans – Average Selling price = Value of Treasury Stock on Common / Treasury stock on common 
(Assumed that company bought shares directly from market)
                                              = $1,320,000 / 100,000 = $13.2 per share
6. What was the average selling price of SUMMER Group’s preferred stock shares listed on the current balance sheet?
Ans – Average Selling price = Value of Treasury Stock on preferred stock / Treasury stock on preferred
(Assumed that company bought shares directly from market)
                                               = $5,000,000 / 250,000 = $20 per share.
7. If SUMMER Group announces a 4 for 1 stock split of the cumulative preferred, then what is the new total amount of the preferred stock?
Ans – The treasury stock does not qualify for the stock split.
Total preferred outstanding shares = 5,750,000
New Outstanding shares after stock split = 5,750,000 * 4 = 23,000,000 shares
New Issued preferred stock = 23,250,000
New Outstanding preferred stock = 23,000,000
Treasury preferred stock = 250,000
8. If SUMMER Group were to provide for a 10% common stock dividend, then how many new shares are to be mailed to existing common stock shareholders?

EQUITY PROBLEM QUESTIONS SUMMER Group – Equity Question SUMMER Group has the following items in its equity section of the balance sheet: Common Stock 5,000,000 shares authorized, 1,200,000 issued...

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