Question

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

2018

$278,000 net loss

2019

$43,000 net loss

2020

$866,000 net income

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

7% cumulative preferred stock, par value $100; authorized, issued,
and outstanding 4,700 shares		$470,000
Common stock, par value $1.00; authorized 1,000,000 shares;
issued and outstanding 680,000 shares		$680,000

B Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since B 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 $104 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

First we need to compute Total Equity

Total Equity
7% Cumulative Preferred Stock	$                470,000
Common Stock	$                680,000
Retained Earnings	$                545,000
866,000 - 43,000 - 278,000
Total Stockholders' Equity	$            1,695,000

(a)

	Total Equity	$            1,695,000
Less:	Preferred Holders Rights
	Cumulative Dividend for 3 years (7% X 470,000 X 3)	$                  98,700
	Liquidating Value	$                470,000
	Value for Equity Shareholder	$            1,126,300
	Number of Shares	680,000.00
	Book Value per share	$                      1.66

(b)

	Total Equity	$            1,695,000
Less:	Preferred Holders Rights
	Cumulative Dividend for 3 years (7% X 470,000 X 3)	$                  98,700
	Liquidating Value (4,700 X 104)	$                488,800
	Value for Equity Shareholder	$            1,107,500
	Number of Shares	680,000.00
	Book Value per share	$                      1.63