Chapter 11: Q12DQ (page 515)
Courts have ruled that a stock dividend is not taxable income to stockholders. What justifies this decision
Stock dividends will not generate any income to the stockholder.Hence stock dividend will not taxable in the hand of the stockholder.
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Question:
Use the following financial information for Samsung (Samsung.com)
Net income less dividends available to preferred shares (in millions) W 16,317,275
Cash dividends declared for common stock (in millions) . . . . . . . .. . W 2,677,250
Cash dividends declared per common share . . . . . . . . . . . . . . . . . . . W 21,015
Number of common shares outstanding (in millions). . . . . . . . . . . . . . . . . . . 127.397
Weighted-average common shares outstanding (in millions) . . . . . . . . . . 129.190
Equity applicable to common shares (in millions) . . . . .. . . . . . 178,940,338
Required
1. Compute book value per share for Samsung.
2. Compute earnings per share (EPS) for Samsung.
3. Compare Samsung’s dividends per share with its EPS. Is Samsung paying out a large or small amount of its income as dividends? Explain
Stockholders’ equity of Ernst Company consists of 80,000 shares of \(5 par value, 8% cumulative preferred stock and 250,000 shares of \)1 par value common stock. Both classes of stock have been outstanding since the company’s inception. Ernst did not declare any dividends in the prior year, but it now declares and pays a $110,000 cash dividend at the current year-end. Determine the amount distributed to each class of stockholders for this two-year-old company.
Question:
Raphael Corporation’s common stock is currently selling on a stock exchange at \(85 per share, and its current balance sheet shows the following stockholders’ equity section:
Preferred stock—5% cumulative, \)___ par value, 1,000 shares
authorized, issued, and outstanding . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . \( 50,000
Common stock—\)___ par value, 4,000 shares authorized, issued,
and outstanding . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Retained earnings . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Total stockholders’ equity . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(280,000
Required
Required
1. What is the current market value (price) of this corporation’s common stock?
2. What are the par values of the corporation’s preferred stock and its common stock?
3. If no dividends are in arrears, what is the book value per share of common stock? (Round per share value to the nearest cent.)
4. If two years’ preferred dividends are in arrears, what is the book value per share of common stock? (Round per share value to the nearest cent.)
5. If two years’ preferred dividends are in arrears and the board of directors declares cash dividends of \)11,500, what total amount will be paid to the preferred and to the common shareholders?
What is the amount of dividends per share for the common stock? (Round per share value to the nearest cent.)
Analysis Component
6. What are some factors that can contribute to a difference between the book value of common stock and its market value (price)?
The stockholders’ equity section of Montel Company’s balance sheet follows. This year’s dividends on preferred stock have been paid and no preferred dividends are in arrears. Determine the book value per share of the common stock.
Preferred stock 5% cumulative, \(10 par value,
20,000 shares authorized, issued, and outstanding . . . . . . . . . . . . \) 200,000
Common stock—\(5 par value, 200,000 shares
authorized, 150,000 shares issued and outstanding . . . . . . . . . . . . 750,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)1,850,000
Compute Topp Company’s price-earnings ratio if its common stock has a market value of \(20.54 per share and its EPS is \)3.95. Would an analyst likely consider this stock potentially overpriced, under-priced, or neither? Explain
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