Question

At December 31, Gorden Corporation has total stockholders' equity of $3,200,000. Included in this total are preferred stock $500,000 and paid-in capital in excess of par—preferred stock $50,000. There are 10,000 shares of $50 par value, 8% cumulative preferred stock outstanding. At year-end, 200,000 shares of common stock are outstanding.

Instructions

Compute the book value per share of common stock under each of the following assumptions.

(a)	There are no preferred dividends in arrears, and the preferred stock does not have a call price.

(b)	Preferred dividends are one year in arrears, and the preferred stock has a call price of $60 per share.

Answer 1

Solution a:

Computation of Book Value per share of common stock
Situation (a)
Total Stockholders' Equity	$32,00,000
Less: Preferred Stock's Book Value (10,000*$50)	$5,00,000
Common Stock Book value	$27,00,000
/Number of Common Shares Outstanding	200000
Book Value per share of Common stock	$13.50

Solution b:

Computation of Book Value per share of common stock
Situation (b)
Total Stockholders' Equity	$32,00,000
Less: Preferred Stock's Book Value (Call Value + Dividend in Arrears) [(10,000*$60) + (10,000*$50*8%)]	$6,40,000
Common Stock Book value	$25,60,000
/Number of Common Shares Outstanding	200000
Book Value per share of Common stock	$12.80