Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Preferred Stock

Financial Accounting

12. Stockholders' Equity

Preferred Stock

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Multiple Choice

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

Preferred shareholders can convert their shares into $100 cash at any time.

Preferred shareholders are guaranteed a 7% increase in the market value of their shares each year.

Preferred shareholders have voting rights equal to 7% of the company's total votes.

Preferred shareholders are entitled to receive $7 in dividends per share each year before any dividends are paid to common shareholders.

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Verified step by step guidance

Understand the concept of preferred stock: Preferred stock is a type of equity security that typically provides shareholders with fixed dividends and priority over common shareholders in receiving dividends or assets in the event of liquidation.

Analyze the problem: The question is asking about the implications of issuing 7% preferred stock with a $100 par value. The key is to focus on the dividend entitlement for preferred shareholders.

Calculate the annual dividend per share: The dividend rate is 7%, and the par value of the stock is $100. To calculate the annual dividend, multiply the par value by the dividend rate. Use the formula:

D = P \times R

, where D is the dividend, P is the par value, and R is the dividend rate.

Interpret the result: The calculation yields the annual dividend amount that preferred shareholders are entitled to receive per share. This amount is paid before any dividends are distributed to common shareholders.

Clarify the incorrect options: Preferred shareholders cannot convert their shares into $100 cash at any time unless explicitly stated in the terms of the stock. They are not guaranteed a 7% increase in market value, as market value fluctuates. Preferred shareholders typically do not have voting rights unless specified in the stock agreement.