Book value of each class of stock? A corporation reports the following stockhold
ID: 2387552 • Letter: B
Question
Book value of each class of stock?
A corporation reports the following stockholder’s equity as of December 31, 2008
Preferred stock, $50 par, 10% cumulative, 100,000
shares authorized and 90,000 shares issued $4,500,000
Paid-in capital in excess of par-common 945,000
Common stock, $10 par, 200,000 shares authorized
and 200,000 shares issued 2,000,000
Paid-in capital in excess of par-common 800,000
Total paid-in capital 8,245,000
Retained earnings 3,400,000
Total stockholder’s equity $11,645,000
No dividends were declared in 2007 and there were no dividends in arrears prior to 2007. What is the book value per share of each class of stock?
Explanation / Answer
With preferred cumulative dividends, any preferred dividends in arrears must be paid before common shareholders receive dividends.
1)
10,000 x 2% x 100 = $20,000 dividends owed to preferred shareholders each year
2005 5,000
Preferred
Total $5,000
5,000 / 10,000 = $0.50 per share, $15,000 dividends is in arrears
Common
0
2006 18,000
Preferred
Total $18,000
18,000 / 10,000 = $1.80 per share. There is now $17,000 dividends in arrears
Common
0
2007 45,000
Preferred
Total $37,000
37,000 / 10,000 = $3.70 per share. There are now 0 dividends in arrears
Common
Total $8,000
8,000 / 25,000 = $0.32 per share
2008 45,000
Preferred
Total $20,000
20,000 / 10,000 = $2 per share
Common
Total $25,000
25,000 / 25,000 = $1 per share
2009 60,000
Preferred
Total $20,000
20,000 / 10,000 = $2 per share
Common
Total $40,000
40,000 / 25,000 = $1.60 per share
2010 67,000
Preferred
Total $20,000
20,000 / 10,000 = $2 per share
Common
Total $47,000
47,000 / 25,000 = $1.88 per share
2. Determine the average annual dividend per share for each class of stock for the six year period.
Since there are no preferred dividends in arrears at the end of the six year period, annual dividend per share for preferred stock is $2.00 per share, the same amount they are owed every year. For common share holders, first add up total dividends paid to them.
8,000 + 25,000 + 40,000 + 47,000 = 120,000
There were 25,000 shares outstanding each year and there were six years. 6.x 25,000 = 150,000.
120,000 / 150,000 = $0.80 average annual dividend per share for common stock.