Question

The equity section of Cyril Corporation’s balance sheet shows the following. Preferred stock—6% cumulative, $25 par value, 10,000 shares issued and outstanding $ 250,000 Common stock—$8 par value, 100,000 shares issued and outstanding 800,000 Retained earnings 535,000 Total stockholders’ equity $ 1,585,000 Determine the book value per share of common stock under two separate situations. 1. No preferred dividends are in arrears at the current date. 2. Three years of preferred dividends are in arrears at the current date.

Answer 1

Answer:

1. No preferred dividends are in arrears at the current date.

Book value per share of common stock = Common Shareholder equity / Number of common stock shares

= (Total shareholders equity - Preferred stock) / Number of common stock shares

= (1,585,000 - 250,000) / 100,000

= $13.35 per share

2. Three years of preferred dividends are in arrears at the current date.

Preferred stock = (Preferred stock + Accumulated dividends)

= 250,000 + (6% * 250,000 * 3 years)

= 295,000 shares

Book value per share of common stock = (1,585,000 - 295,000) / 100,000

= $12.90 per share