Additional information: On May 1, 2015, 5,000 shares of common stock were issued

Question

Additional information:
On May 1, 2015, 5,000 shares of common stock were issued. The preferred dividends were not declared during 2015. The market price of the common stock was $50 at December 31, 2015.

The book value per share of common stock at 12/31/15 is calculated as:

A. 455 ÷ 14
B. 380 ÷ 14
C. 220 ÷ 14
D. 460 ÷ 14

December 31 2015 2014 5% Cumulative preferred stock, $50 par: $100,000 $100,000 Common stock, $10 par: $140,000 $90,000 Additional paid-in capital: $80,000 $70,000 Retained earnings (includes current year net income): $240,000 $215,000 Net income: $60,000

Explanation / Answer

Book Value per share = (Common stock capital + Additional Paid In capital + Retained Earnings - Preferred Dividend) No of shares

= ( 140 + 80 + 240 - 5% of 100) / 14 = 455 /14

Correct Choice: A

Though preferred dividends are not declared but they should be deducted as the preferred stock are cumulative, i.e. dividends accrue every year

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