How does the 9% compute in determining the preferred stock and the common stock? :confused:

Here's the way the example appears:

9% cummulative preferred stock, $100 par value
authorized 100,000 shares, issued 50,000.. . $5,000,000

Common stock, $5 par value, authorized 3 million
shares, issued 2 million shares.. . 10,000,000

Additional paid in capital:
Preferred stock.. . 500,000
Common stock.. . 20,000,000
Total paid-in capital.. . $35,500,000

I don't know how to factor in the 9% for the dividends paid to preferred stockholders before everyone else. How was the $500K and $20 million calculated?

So far I have:

Preferred stock
100K shares x $100 par value = $10 million authorized
50K shares x $100 par value = $5 million issued

Common stock
3 million shares x $5 = $15 million authorized
2 million shares x $5 = $10 million issued

I'm stuck! :confused: Can anyone help please?

Thanks,
Carol

The 9% is only used in determining the cash dividends for Preferred Stock. To compute the cash dividends for preferred stock you would take the 9% times the par value of the preferred stock times the number of preferred shares issued and outstanding.

The $500,000 is from the issue price above the par value on the Preferred Stock. The Preferred Stock was issued for $110 share.

The $20 million is from the issue price above the par value on the Common Stock. The Common Stock was issued for $15 a share.

For dividends on common stock there will usually be listed the total amount of cash dividends and you would have to subtract the preferred stock dividends to get your cash dividends that is available to common stock holders, or you will be given the dividend per share for common stockholders so you would take this amount times the number of common shares issued and outstanding.

The number of shares that are authorized is only listed because that is the maximum number of shares that can be issued by a company and does not have any other meaning.