Just did a Qbank question on FAS where they stated the market value of the company’s preferred stock was $5 mil, compared to $7 mil on the balance sheet. What adjustments would you make? They seemed to increase equity by $2 mil and reduce preferred stock by $2 mil, but I don’t see how that works. - surely then there is no net effect on equity?
A=L+E This is only an analyst adjustment. they moved the money from one account in equity to another. E consists of CS (Common) + PS (Preferred) + Retained Earnings PS down 2, so something else in Equity (say RE up 2).
Thanks CP, but how come they then calculated the adjusted D/E ratio using E + $2 mil? I’d post the question but it’s one of those long FSA ones with tables and stuff - id 87592 if you have Qbank, part 3
Preferred stock went down to 5000 Equity went up 2000 so overall they are keeping it at 7000. I see no issue with that. Other parts affecting the Equity account: Goodwill = -8000, and change in the LT Debt of -1000. so overall new equity has become 70000. Seems ok to me.
Sorry, you’re dead right. This part of the answer threw me a bit: Equity adjustments: −$8,000 [goodwill] − 1,000 [increase in long-term debt] + 2,000 [decrease in preferred stock] = −$7,000 I am an eejit