Part IV The stockholders\' equity section from Beta Corporation\'s balance sheet

Question

Part IV The stockholders' equity section from Beta Corporation's balance sheet shows the following: CAPITAL STOCK AND RETAINED EARNINGS Preferred stock, $100 par value, 6% cumulative and nonpartici- pating, issued and outstanding 2,500 shares Common stock, $10 par value, issued and outstanding 50,000 $250,000 500,000 shares Total contributed capital $750,000 230,000 $980,000 Retained earnings . Total stockholders' equity 1. If there are no dividends in arrears, the book value of the corporation's preferred stock is per -share _ and the book value of its common stock is s_ per share. 2. If a total of two years dividends are in arrears on the preferred stock, the book value of the preferred Der share por _ and the book value of the common stock is s.. share stock is S

Explanation / Answer

1. Book Value of preffered Stock = 250000 / 2500 =100 per share

     Book Value of Common Stock = (500000+230000) / 50000 = 14.6 per share

2. Book Value of Preffered Stock = [250000 + (250000 x 6% x 2)] / 2500 = 112 per share

   Book Value of common stock = (500000+230000-30000) / 50000 = 14 per share

In case 1 no dividend is in arrears so total liablity of comapny against prefrence share hoders is only the issued capital amount whereas in case 2 total liablity towards preference share holders is increased by dividend in arrears so book value per share is also increased.

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