The equity of Webster Corporation\'s balance sheet shows the following Preferred

Question

The equity of Webster Corporation's balance sheet shows the following

Preferred stock-- 5% Cumulative, $10 par value, $15 call price
10,000 shares issued and outstanding ............................................$100,000
Common Stock-- $10 par value, 55,000 shares issued and
outstanding ...........................................................................$550,000
Retained Earnings ................................................................... $267,500

Total stockholders' equity ......................................................... $917,500

Determine the book value per share of the preferred and common stock under two separate situations.
1. No preferred dividends are in arrears.
2. Three years of preferred dividends are in arrears.
Please don't post simple answers, I need the solutions so I can understand where the answers are coming from.

Explanation / Answer

Requirement 1: No preferred dividends are in arrears. Book value of preferred stock $30 per share Book value of common stock (917,500 - 300,000) / 35,000 = 17.64 per share Requirement 2: Three years of preferred dividends are in arrears. Book value of preferred stock [300,000 + (300,000 x 6% x 3)] / 10,000 = 35.40 per share Book value of common stock [917,500 - (10,000 x 35.40)] / 35,000 = 16.10 per share

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.