Question

Question: The stockholders’ equity section of Montel Company’s balance sheet follows. This year’s dividends on preferred stock have been paid and no preferred dividends are in arrears. Determine the book value per share of the common stock.

Preferred stock 5% cumulative, $10 par value,

20,000 shares authorized, issued, and outstanding . . . . . . . . . . . . $ 200,000

Common stock—$5 par value, 200,000 shares

authorized, 150,000 shares issued and outstanding . . . . . . . . . . . . 750,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 900,000

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,850,000

Answer 1

Step 1: Definition of book value

 Book value reflects the amount of equity applicable to common shares on a per-share basis. Book Value Per Share is calculated by dividing the stockholder’s equity by the Number of shares.

Step-2 Book Value Computation

	Amount
Total stockholders’ equity	$1,850,000
Less: equity applicable to preferred shares par-value	$200,000
Equity applicable to common shares	$1,650,000
Book value per common share (1,650,000/150,000)	$ 11

 

The book value of the shares are $11.