Question

Martinez Inc. began operations in January 2018 and reported the following results for each of its 3 years of operations.

2018

$268,000 net loss

2019

$38,000 net loss

2020

$775,000 net income

At December 31, 2020, Martinez Inc. capital accounts were as follows.

8% cumulative preferred stock, par value $100; authorized, issued,
and outstanding 4,500 shares		$450,000
Common stock, par value $1.00; authorized 1,000,000 shares;
issued and outstanding 741,000 shares		$741,000

Martinez Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Martinez began operations. The state law permits dividends only from retained earnings.

(a) Compute the book value of the common stock at December 31, 2020. (Round answers to 2 decimal places, e.g. $38.50.)

Book value per share

$enter a dollar amount of the book value of the common stock at December 31, 2020 rounded to 2 decimal places

(b) Compute the book value of the common stock at December 31, 2020, assuming that the preferred stock has a liquidating value of $107 per share. (Round answers to 2 decimal places, e.g. $38.50.)

Book value per share

$enter the book value per share in dollars rounded to 2 decimal places

Answer 1

Preferred stock	450000
Common stock	741000
(+) Retained earnings [ 775000 - 38000 - 268000 ]	469000
Stockholder' equity	1660000

(a)
Stockholder's equity	1660000
(-) Preferred stock	450000
Common stockholders' equity	1210000
Book value per share = Common stockholders' equity / Shares of common stock outstanding = 1210000 / 741000	1.63

(b)
Stockholder's equity	1660000
(-) Liquidating value of preferred stock [ 4500 * 107 ]	481500
Common stockholders' equity	1178500
Book value per share = Common stockholders' equity / Shares of common stock outstanding = 1178500 / 741000	1.59