The balance sheet of Beautiful Rug Company reported the following (Click the ico
ID: 2570823 • Letter: T
Question
The balance sheet of Beautiful Rug Company reported the following (Click the icon to view the data.) Requirements 1. Compute the book value per share for the common stock, assuming all preferred dividends are fully paid up (none in arrears). 2. Compute the book value per share of the common stock, assuming that three years cumulative preferred dividends, including the current year, are in arrears. 3. Beautiful Rug's common stock recently traded at a market price of $7.25 per share. Does this mean that Beautiful Rug's stock is a good buy at $7.25? Requirements 1. and 2. Compute the book value per share for the common stock, (1) assuming all preferred dividends are fully paid up (none in arrears), and (2) assuming that three years cumulative preferred dividends, including the current year, are in arrears. Begin by selecting the formula labels and then enter the amounts to calculate the book value per share of common stock for requirement 1 and requirement 2. Abbreviations used: BV = Book Value. CS Common Stock, and Req : Requirement Round the book value per share to the nearest cent) - BV per share of C$S Data Table Redeemable preferred stock, 4%, $60 par value $ 30,000 .redemption value $45,000, outstanding 500 shares Common stockholders' equity: 66,000 6,000 shares issued and outstanding $ 96,000 Total stockholders' equity Choose from any drop-down list and then click Check AnswerExplanation / Answer
Answer to Requirement 1:
Book Value per share of Common Stock = (Issued Common Stock Capital – Arrear Dividend) / No. of Stock outstanding
Book Value per share of Common Stock = 66,000 / 6,000
Book Value per share of Common Stock = $11
Answer to Requirement 2:
Book Value per share of Common Stock = (Issued Common Stock Capital – Arrear Dividend) / No. of Stock outstanding
Preferred Dividend per Year = $30,000 * 4% = $1,200
Arrear Preferred Dividend = $1,200 * 3 = $3,600
Book Value per share of Common Stock = (66,000 – 3,600) / 6,000
Book Value per share of Common Stock = $10.40
Answer to Requirement 3:
Yes, Beautiful Rug’s Stock is good buy at $7.25 per share, as the stock is available for cost less than the Book Value of Share.
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