Kirk and Kirk, Ltd. began operations in July 2011 and reported the following res

Question

Kirk and Kirk, Ltd. began operations in July 2011 and reported the following results for each of its first 3 years of operations. 2011 - $20,000 net income 2012 - $640,000 net loss 2013 - $950,000 net income At December 31, 2013, Kirk and Kirk, Ltd.’s capital accounts were as follows. 16% cumulative preferred stock, par value $100; authorized, issued, and outstanding 1,000 shares $100,000 Common stock, par value $1; authorized 10,000,000 shares; issued and outstanding 50,000 shares 50,000 Kirk and Kirk, Ltd. has never paid a cash or stock dividend. There has been no change in the capital accounts since Kirk and Kirk, Ltd. began operations. The state law permits dividends only from retained earnings. Instructions (a) Compute the book value of the common stock at December 31, 2013. (b) Compute the book value of the common stock at December 31, 2013, assuming that the preferred stock has a liquidating value of $103 per share.

Explanation / Answer

Kirk And Kirk Ltd Stockholders'Equity as on Dec31 2013. Details Amt 16% cumulative preferrred stock,par value $100, Authorised, issued and outstanding 1000 shares                 100,000 Common stock , par value $1, Authorised 10M, issued & outstanding 50,000                   50,000 Retained Earning Balance                 330,000 Total Stockholders'Equity as on Dec31 2013.                 480,000 a Preferred share dividend per year =                   16,000 Preferred dividend in arrears for 3 years                   48,000 Preferred share book value on Dec 31 2013.                   64,000 Commons Stock Book value calculation Total Stockholders'Equity as on Dec31 2013.                 480,000 Less Book value preferred stock dec 31 2013.                 (64,000) Book Value of Common stock dec 31.2013.                 416,000 No of common stock outstanding                     50,000 Book Value per Common Stock $                   8.32 b Preferred share dividend per year =                   16,000 Preferred dividend in arrears for 3 years                   48,000 Call price per preferred stock                           103 Total Call price preferred stock                 103,000 Preferred share book value on Dec 31 2013.=Call Price+Dividend arrears=                 151,000 Commons Stock Book value calculation Total Stockholders'Equity as on Dec31 2013.                 480,000 Less Book value preferred stock dec 31 2013.              (151,000) Book Value of Common stock dec 31.2013.                 329,000 No of common stock outstanding                     50,000 Book Value per Common Stock $                   6.58

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