C is corrent. The book value per common share is calculated as common stockholders’ equity divided by outstanding shares. If preferred dividends are in arrears, the preferred stock is participating, or if preferred stock has a redemption or liquidation value higher than its carrying amount, retained earnings must be allocated between the preferred and common stockholders in computing book value. In this problem, the liquidation value of the preferred stock is $105,000 ($105,000 – $100,000), which is more than the carrying amount ($100,000) of the preferred stock. Thus, the following allocation must be made:| Stockholders’ equity | Preferred | Common | | Preferred stock | $100,000 | | | Common stock | | $ 300,000 | | Retained earnings: | | | | Liquidation value in excess of carrying value ($105,000 -$100,000) | 5,000 | | | Remainder to common | | $ 90,000 | | Totals | $105,000 | $ 390,000 | | Shares outstanding | | 30,000 | | Book value per share | | $ 13.00 |
A is incorrect. The book value per common share is calculated as common stockholders’ equity divided by outstanding shares. If preferred dividends are in arrears, the preferred stock is participating, or if preferred stock has a redemption or liquidation value higher than its carrying amount, retained earnings must be allocated between the preferred and common stockholders in computing book value. In this problem, the liquidation value of the preferred stock is $105,000 ($105,000 – $100,000), which is more than the carrying amount ($100,000) of the preferred stock. Thus, the following allocation must be made:| Stockholders’ equity | Preferred | Common | | Preferred stock | $100,000 | | | Common stock | | $ 300,000 | | Retained earnings: | | | | Liquidation value in excess of carrying value ($105,000 -$100,000) | 5,000 | | | Remainder to common | | $ 90,000 | | Totals | $105,000 | $ 390,000 | | Shares outstanding | | 30,000 | | Book value per share | | $ 13.00 |
B is incorrect.The book value per common share is calculated as common stockholders’ equity divided by outstanding shares. If preferred dividends are in arrears, the preferred stock is participating, or if preferred stock has a redemption or liquidation value higher than its carrying amount, retained earnings must be allocated between the preferred and common stockholders in computing book value. In this problem, the liquidation value of the preferred stock is $105,000 ($105,000 – $100,000), which is more than the carrying amount ($100,000) of the preferred stock. Thus, the following allocation must be made:| Stockholders’ equity | Preferred | Common | | Preferred stock | $100,000 | | | Common stock | | $ 300,000 | | Retained earnings: | | | | Liquidation value in excess of carrying value ($105,000 -$100,000) | 5,000 | | | Remainder to common | | $ 90,000 | | Totals | $105,000 | $ 390,000 | | Shares outstanding | | 30,000 | | Book value per share | | $ 13.00 |
D is incorrect. The book value per common share is calculated as common stockholders’ equity divided by outstanding shares. If preferred dividends are in arrears, the preferred stock is participating, or if preferred stock has a redemption or liquidation value higher than its carrying amount, retained earnings must be allocated between the preferred and common stockholders in computing book value. In this problem, the liquidation value of the preferred stock is $105,000 ($105,000 – $100,000), which is more than the carrying amount ($100,000) of the preferred stock. Thus, the following allocation must be made:| Stockholders’ equity | Preferred | Common | | Preferred stock | $100,000 | | | Common stock | | $ 300,000 | | Retained earnings: | | | | Liquidation value in excess of carrying value ($105,000 -$100,000) | 5,000 | | | Remainder to common | | $ 90,000 | | Totals | $105,000 | $ 390,000 | | Shares outstanding | | 30,000 | | Book value per share | | $ 13.00 |
|
