Question

Question:

The Commonsection 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’ Common. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)1,585,000

This year’s dividends on preferred stock have been paid. Determine the book value per share of common stock under two separate situations.

1. No preferred dividends are in arrears.

2. Three years of preferred dividends are in arrears.

Short answer

Answer

1. $13.35
2. $12.90

Step-by-step solution

Step-1 Computation of Book Value Per Share when no preferred dividend arrears (1)

	Amount
Total common stockholders	$ 1,585,000
Less: Preferred shares Par Value	250,000
Balance for common stockholders	1,335,000
Number of common stock outstanding	100,000
Book value per common share (1,335,000/100,000)	$ 13.35

Step-2 Computation of Book Value Per Share when 3-year preferred dividend arrears (2)

	Amount
Total common stockholders	$ 1,585,000
Less: Preferred shares Par Value	250,000
Less:Preferred Dividend Arrears (10,000x25x6%)x3	45,000
Balance for common stockholders	1,290,000
Number of common stock outstanding	100,000
Book value per common share (1,290,000/100,000)	$ 12.90