Question

2. a. Arrange the following items in proper balance sheet format

Cash .......... range the following items in a proper balance sheet format: .......... $300,000 Accumulated depreciation.............. .......... 98,000 Retained earning.................. ..................20,000 ................136,000 Bond payable ......... ............. ....... ..................50,000 Account receivable ......................... 690,000 Plant and equipment - original cost ........... Account Payable .......... . ........35,000 Allowance for bad debts.......... .............8,000 Common stock, $1 par, 100,000 shares outstanding.. ................ 100,000 Inventory ........... 70,000 Preferred stock, $50 par, 1,000 shares outstanding ..............50,000 Marketable securities ...... ............ .. 20,000 Investment ..... ..24,000 Notes Payable ........... ..................... 33,000 Capital paid in excess of par (common stock) .......................... 114,000 b. Compute book value (net worth) per share of common stock. c. If the net earning is $160,000 and the P/E (Price Earning Ratio)=20, calculate the market value per share.

Answer 1

Solution:

(A)	BALANCE SHEET
	ASSETS	Amount $	Amount $
	Current Assets
	Cash		20,000
	Marketable Securities		20,000
	Accounts Receivable	50,000
	Less: Allowances for bad debt	-8,000	42,000
	Inventory		70,000
	Fixed Assets
	Plant and Equipment on Cost	690,000
	Less: Accumulated Depreciation	-300,000	390,000
	Investment		24,000
	Total Assets		566,000
	LIABILITY AND SHAREHOLDERS’ EQUITY
	Current Liabilities
	Accounts Payable		35,000
	Notes Payable		33,000
	Non-Current Liabilities
	Bond Payable		136,000
	Shareholders’ Equity
	Common Stock
	100,000 shares issued and outstanding, $1 par	100,000
	Paid in capital in excess of par	114,000	214,000
	Preferred Stock		50,000
	1,000 shares issued and outstanding, $50 par
	Retained Earnings		98,000
	Total Liability and Shareholders' Equity		566,000

(B)

Calculation of Book Value per share of Common Stock

Book Value per share

= (Total Shareholders’ Equity - Preferred Stock) / No. of Outstanding Shares of common Stock

= (362,000 - 50,000) / 100,000

= $ 3.12 per share

(C)	Calculation of Market Value per share
	Market Value per share			= Price Earning Ratio * Earning per share
				= 20 * 1.60
				= $32 per share
	Working:	Calculation of Earning per share (EPS)
		EPS	= Net Earning / No. of share of common Stock
			= $160,000 / 100,000)
			= $1.60 per share