Question

Problem 11-5A Computation of book values and dividend allocations LO C2, A4 [The following information applies to the questions displayed below.] Raphael Corporation's common stock is currently selling on a stock exchange at $198 per share, and its current balance sheet shows the following stockholders' equity section: Preferred stock-5% cumulative, $ authorized, issued, and outstanding Common stock-$__par value, 4,000 shares authorized, issued and outstanding Retained earnings par value, 1,000 shares $ 60,000 180,000 370,000 Total stockholders' equity $610,000

Answer 1

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1. Market price (current stock exchange price given)	$                                                                                                                     198
2. Computation of par values of stock
Preferred:	Paid-in amount / Number of shares = $60,000 / 1,000
Common:	Paid-in amount / Number of shares = $180,000 / 4,000
3. Book values with no dividends in arrears
Book value per preferred share	par value (when not callable)
Common stock
Total equity	$                                                                                                             610,000
Less equity for preferred	$                                                                                                              -60,000
Common stock equity	$                                                                                                             550,000
Number of outstanding shares	4,000
Book value per common share	$                                                                                                               137.50
4. Book values with two years’ dividends in arrears
Preferred stock
Preferred stock par value	$                                                                                                               60,000
Plus two years’ dividends in arrears (60,000*5%*2 Years)	$                                                                                                                  6,000
Preferred equity	$                                                                                                               66,000
Number of outstanding shares	1,000
Book value per preferred share	$                                                                                                                        66
Common stock
Total equity	$                                                                                                             610,000
Less equity for preferred	$                                                                                                              -66,000
Common stock equity	$                                                                                                             544,000
Number of outstanding shares	4,000
Book value per common share	$                                                                                                               136.00
5. Book values with call price and two years’ dividends in arrears
Preferred stock
Preferred stock call price (1,000 x $70)	$                                                                                                               70,000
Plus two years’ dividends in arrears (60,000*5%*2 Years)	$                                                                                                                  6,000
Preferred equity	$                                                                                                               76,000
Number of outstanding shares	1,000
Book value per preferred share	$                                                                                                                        76
Common stock
Total equity	$                                                                                                             610,000
Less equity for preferred	$                                                                                                              -76,000
Common stock equity	$                                                                                                             534,000
Number of outstanding shares	4,000
Book value per common share	$                                                                                                               133.50
6. Dividend allocation in total
	Preferred	Common	Total
2 years’ dividends in arrears	$                                                                                                                  6,000	$              -	$     6,000
Current year dividends	$                                                                                                                  3,000	$              -	$     3,000
Remainder to common	.	$     12,600	$   12,600
Totals	$                                                                                                                  9,000	$     12,600	$   21,600
Dividends per share for the common stock		$         3.15
($12,600/4,000)