Question

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

2018

$274,000 net loss

2019

$44,000 net loss

2020

$880,000 net income

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

8% cumulative preferred stock, par value $100; authorized, issued,
and outstanding 5,100 shares		$510,000
Common stock, par value $1.00; authorized 1,000,000 shares;
issued and outstanding 702,000 shares		$702,000

Vaughn Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Vaughn 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 $105 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

Solution a:
Computation of Total Stockholders Equity
Preferred Stock		510000
Common Stock		702000
Retained earnings (880000-44000-274000)		562000
Total stockholder's equity		1774000
Computation of Book Value per Share
Total stockholder's equity		1774000
Less: Value of Preferred stock
Preferred dividend for 3 years (510000*8%*3)	122400
Liquidating value of preferred stock	510000
Equity available for preferred stockholder		632400
Equity available for common stockholder		1141600
/ Number of Common share outstanding		702000
Book value per share		1.63
Solution b:
Computation of Book Value per Share
Total stockholder's equity		1774000
Less: Value of Preferred stock
Preferred dividend for 3 years (510000*8%*3)	122400
Liquidating value of preferred stock (5100 shares*$105)	535500
Equity available for preferred stockholder		657900
Equity available for common stockholder		1116100
/ Number of Common share outstanding		702000
Book value per share		1.59