Question

The stockholders’ equity section of Montel Company’s balance sheet follows. This year’s dividends on preferred stock have been paid and no preferred dividends are in arrears. Determine the book value per share of the common stock.

Preferred stock 5% cumulative, \(10 par value,

20,000 shares authorized, issued, and outstanding . . . . . . . . . . . . \) 200,000

Common stock—\(5 par value, 200,000 shares

authorized, 150,000 shares issued and outstanding . . . . . . . . . . . . 750,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)1,850,000

Short answer

Book value per share equals $11 per share.

Step-by-step solution

Step 1:Explanation onbook value per share

Book value per Share indicates equity applicable on per share basis.

Book value per sharecomputation

	Amount
Total stockholders’ equity	$ 1,850,000
Less:Equity applicable to preferred shares Par Value	200,000
Stockholders’ equity applicable to common shares	$1,650,000
Number of common shares outstanding	150,000
Book value per common share (1,650,000/150,000)	$ 11