Question

Ayayai Inc. began operations in January 2018 and reported the following results for each of its 3 years of operations. 2018 $246,000 net loss 2019 $38,000 net loss 2020 $835,000 net income At December 31, 2020, Ayayai Inc. capital accounts were as follows. 8% cumulative preferred stock, par value $100; authorized, issued, and outstanding 5,400 shares $540,000 Common stock, par value $1.00; authorized 1,000,000 shares; issued and outstanding 693,000 shares $693,000 Ayayai Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Ayayai 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

Answer A

Answer A
8% cumulative preferred stock, par value $100; authorized, issued, and outstanding 5,400 shares		$            540,000
Common stock, par value $1.00; authorized 1,000,000 shares; issued and outstanding 693,000 shares		$            693,000
Cumulative earnings
Net loss 2018	$       (246,000)
Net loss 2019	$          (38,000)
Net income 2020	$          835,000
Cumulative earnings		$            551,000
Total stockholder's equity		$        1,784,000
Total stockholder's equity		$        1,784,000
Less: preferred stock
Preferred dividend for 3 years (540000*8%*3)	$          129,600
Liquidating value of preferred stock	$          540,000
Equity available for preferred stockholder		$            669,600
Equity available for common stockholder		$        1,114,400
Equity available for common stockholder		$        1,114,400
Divided by: Number of share outstanding		693,000
Book value per share		$                   1.61

Answer B

Answer B
8% cumulative preferred stock, par value $100; authorized, issued, and outstanding 5,400 shares		$         540,000
Common stock, par value $1.00; authorized 1,000,000 shares; issued and outstanding 693,000 shares		$         693,000
Cumulative earnings
Net loss 2018	$     (246,000)
Net loss 2019	$        (38,000)
Net income 2020	$        835,000
Cumulative earnings		$         551,000
Total stockholder's equity		$      1,784,000
Total stockholder's equity		$      1,784,000
Less: preferred stock
Preferred dividend for 3 years (540000*8%*3)	$        129,600
Liquidating value of preferred stock (5400 share * $105)	$        567,000
Equity available for preferred stockholder		$         696,600
Equity available for common stockholder		$      1,087,400
Equity available for common stockholder		$      1,087,400
Divided by: Number of share outstanding		693,000
Book value per share		$                1.57