Question - Examine the following document:
Revenues $ 1,000,000
Operating Expenses
- Cost of goods sold $ 400,000
- Depreciation 100,000
- Salaries and wages 200,000
Bond interest (8% debentures sold at maturity value of $1,000,000) 80,000
Dividends declared on 6% preferred stock (par value $500,000) 30,000
Dividends declared of $5 per share on common stock (20,000 shares outstanding) 100,000
Determine the income under each of the following equity theories:
Proprietary theory
Entity theory (orthodox view)
Entity theory (unorthodox view)
Residual theory
Would any of your answers change if the preferred stock is convertible at any time at the ratio of 2 preferred shares for 1 share of common stock?