Question

The equity section 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—$10 par value, 40,000 shares issued and outstanding		400,000
Retained earnings		267,500
Total stockholders’ equity	$	917,500

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.

Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the book value per share of the preferred and common stock for no preferred dividends are in arrears. Book Value per Common Share Choose Denominator: Choose Numerator: Choos = Book Value per Common Share Book value per common share Required 1 Required 2 >

Answer 1

1.No preferred dividends are in arrears
Book Value per Common Share
Choose Numerator	/	Choose Denominator	=	Book value per common share
Stockholders equity applicable to common shares	/	Number of common shares outstanding	=	Book value per common share
$667,500 [Refer working note 1]	/	40,000		$16.69
2. Three years of preferred dividends are in arrears.
Book Value per Common Share
Choose Numerator	/	Choose Denominator	=	Book value per common share
Stockholders equity applicable to common shares	/	Number of common shares outstanding	=	Book value per common share
$622,500 [Refer working note 2]	/	40,000		$15.56

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Working note 1 - Calculation of Stockholders equity applicable to common shares [When there is no dividend arrears]
Total stockholders equity		$917,500
Less: Stockholders equity applicable to preferred shares:
Preferred stock	$250,000
Cumulative preferred dividend	$0
Total                                                                     [$250,000 + $0]		$250,000
Stockholders equity applicable to common shares      [$917,500 - $250,000]		$667,500

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Working note 2 - Calculation of Stockholders equity applicable to common shares [When there is 3-year preferred dividend arrears]
Total stockholders equity		$917,500
Less: Stockholders equity applicable to preferred shares:
Preferred stock	$250,000
Cumulative preferred dividend    [$250,000 x 6% x 3 years]	$45,000
Total                                             [$250,000 + $45,000]		$295,000
Stockholders equity applicable to common shares           [$917,500 - $295,000]		$622,500