Several years ago, Rolen Riders issued preferred stock with a stated annual dividend
of 10% of its $100 par value. Preferred stock of this type currently yields 8%. As-
sume dividends are paid annually.
a. What is the value of Rolen’s preferred stock?
b. Suppose interest rate levels have risen to the point where the preferred stock
now yields 12%. What would be the new value of Rolen’s preferred stock?

Alto Company issued 1000 shares of 7% preferred stock with a $100 par value. This means that:

Raphael Corporation’s common stock is currently selling on astock exchange at $154 per share, and its current balance sheetshows the following stockholders’ equity section: Preferredstock—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 300,000

Total stockholders' equity $ 430,000

What is the current market value (price) of this corporation’scommon stock?

What are the par values of the corporation's preferred stock andits common stock?

If no dividends are in arrears, what are the book values pershare of the preferred stock and the common stock?

If two years' preferred dividends are in arrears, what are thebook values per share of the preferred stock and the commonstock?

If two years’ preferred dividends are in arrears and thepreferred stock is callable at $60 per share, what are the bookvalues per share of the preferred stock and the common stock?

If two years’ preferred dividends are in arrears and the boardof directors declares cash dividends of $19,500, what total amountwill be paid to the preferred and to the common shareholders?

Assume the client has preferred stock that includes a maturitydate at which time the entity is obliged to reacquire the preferredstock. The client has classified the preferred stock as equity andthe related annual distributions to stockholders as dividendsdeclared. Select the item that best describes how the auditor willdeal with this preferred stock.

A. The classification is correct as it is.

B. The preferred stock dividends should be reclassified asinterest expense.

C. The preferred stock should be reclassified to debt and thepreferred stock dividends should be reclassified as interestexpense.

D. Assure that the preferred stock appears first in priority inthe paid in capital section of stockholders’ equity.