Question 1

Dexter Corporation has total paid-in capital of $160,000 and retained earnings of $60,000.It has 1,500 shares of $10 preferred stock with no dividends in arrears and 2,000 shares of $10 par value common stock.The book value of each share of common stock is:

Accepted Answer

The book value of each share of common stock is calculated as follows:Total stockholders' equity = $160,000 + $60,000 = $220,000Preferred stock value = 1,500 shares x $10 = $15,000Common stock value = $220,000 - $15,000 = $205,000Book value per share of common stock = $205,000 / 2,000 shares = $102.50

Question 2

If total stockholders' equity is $90,000 with 5,000 common shares outstanding,what is the book value per share?

Accepted Answer

The book value per share is calculated by dividing the total stockholders' equity by the number of common shares outstanding. So, $90,000 / 5,000 shares = $18.00 per share.

Question 3

Par value is the price per share a corporation pays to holders of stock when it is redeemed.

Accepted Answer

Par value is the nominal or face value of a share of stock as determined by the issuing company, and it has no relation to the price at which the stock can be redeemed or sold in the market. The par value is usually a very small amount and is more of an accounting concept than a reflection of the stock's true market value.

Question 4

Market value is the price at which a share of stock is bought and sold.

Accepted Answer

Market value is the current price at which a stock is traded on an exchange, reflecting supply and demand for the stock.

Question 5

From the following,determine the book value per share for preferred and common stocks; no dividends are in arrears on the preferred stock.
$\begin{array}{llcc}
  \text { Stockholders' Equity } &  \
 \text { Preferred Stock, \( 8 \% $ cumulative and } &\
 \text {$ \$ 10 $ par value, $ \$ 12 $ redemption value  } &\
 \text { 5,000 shares issued and outstanding } &\$50,000\
 \text { Common Stock, \$1 par value, 40,000 shares } &\
 \text { issued and outstanding } &40,000\
 \text {  Retained Earnings} &16,000\
\
 \text {Total Stockholders' Equity  } &\underline{\underline{\$106,000}}\

\end{array}\)

Accepted Answer

The answer of From the following,determine the book value per...

Question 6

Book value per share is found by dividing total assets by total stockholders' equity.

Accepted Answer

Book value per share is found by dividing total stockholders' equity by the number of outstanding shares.

Question 7

Total stockholders' equity consists of retained earnings of $150,000 and paid-in capital of $600,000.There are 30,000 common shares outstanding.What is the book value per share?

Accepted Answer

Book value per share is calculated by dividing the total stockholders' equity by the number of common shares outstanding. 
Book value per share = (Retained earnings + Paid-in capital) / Number of common shares outstanding 
Book value per share = ($150,000 + $600,000) / 30,000 
Book value per share = $750,000 / 30,000 
Book value per share = $25.00 per share

Question 8

Book value is only calculated for common stock.

Accepted Answer

Book value can be calculated for both common stock and preferred stock, as well as for the company as a whole, reflecting the net asset value of the company's total equity.

Question 9

From the following,determine the book value per share for preferred and common stocks,assuming $2,000 of dividends are in arrears on the preferred stock.
$\begin{array}{llcc}
  \text { Stockholders' Equity } &  \
 \text { Preferred Stock, \( 8 \% $ cumulative and } &\
 \text {$ \$ 10 $ par value, $ \$ 12 $ redemption value  } &\
 \text { 5,000 shares issued and outstanding } &\$20,000\
 \text { Common Stock, \$1 par value, 40,000 shares } &\
 \text { issued and outstanding } &40,000\
 \text {  Retained Earnings} &8,000\
\
 \text {Total Stockholders' Equity  } &\underline{\underline{\$68,000}}\

\end{array}\)

Accepted Answer

The answer of From the following,determine the book value per...

Question 10

Ariel Investigations has total paid-in capital of $90,000 and retained earnings of $60,000.It has 200 shares of $100 par value common stock outstanding.The book value of each share of common stock is:

Accepted Answer

The book value per share is calculated by dividing the total equity by the number of shares outstanding. Total equity is the sum of paid-in capital and retained earnings, which is $90,000 + $60,000 = $150,000. With 200 shares outstanding, the book value per share is $150,000 / 200 = $750.

Question 11

Patterson Research has 200 shares of 10%,$100 par value,preferred stock,and 2000 shares of $10 par value common stock outstanding.Total paid-in capital is $40,000,and retained earnings are $0.There are one-year dividends in arrears on preferred stock.The book value per share on common stock is:

Accepted Answer

The book value per share of common stock can be calculated as:

Book value per share = Total shareholder equity / Number of common shares outstanding

Total shareholder equity is the sum of paid-in capital and retained earnings. In this case, the retained earnings are zero and the paid-in capital is $40,000. However, the preferred stock has a liquidation preference, which means that the preferred shareholders have a claim to the assets of the company before the common shareholders in the event of liquidation.

Since the preferred stock has one-year dividends in arrears, the preferred shareholders have a claim to at least $2,000 (200 shares x $100 par value x 10% dividend rate x 1 year) of the $40,000 in paid-in capital. Therefore, the total shareholder equity available to the common shareholders is $38,000 ($40,000 - $2,000).

The number of common shares outstanding is 2,000. Therefore, the book value per share of common stock is:

Book value per share = $38,000 / 2,000 = $19

However, this is before taking into account the one-year dividends in arrears on the preferred stock. Since the preferred shareholders must receive their dividends in full before any dividends can be paid to the common shareholders, the common shareholders do not have a claim to the $2,000 in arrears. Therefore, the total shareholder equity available to the common shareholders is reduced by $2,000, leaving $36,000.

The revised book value per share of common stock is:

Book value per share = $36,000 / 2,000 = $18

Since the par value of the common stock is $10, the book value per share is less than the par value. This is because the company has not yet generated any retained earnings, and the preferred stock has a liquidation preference. Therefore, the correct answer is D) $9.

Question 12

Market value is the same as par value.

Accepted Answer

Market value and par value are not the same. Par value is the nominal value of a security, while market value is the current price at which a security is trading in the market.

Question 13

What is the book value per share of common stock if total stockholders' equity is $450,000 with 15,000 shares of common stock outstanding?

Accepted Answer

The book value per share of common stock is calculated by dividing the total stockholders' equity by the number of shares of common stock outstanding. Therefore, $450,000 / 15,000 shares = $30.00 per share.

Question 14

When treasury stock is sold,the Paid-in Capital in Excess of Par is returned.

Accepted Answer

When treasury stock is sold, the proceeds are credited to the company's cash account and the corresponding entry is a reduction of the treasury stock account. The Paid-in Capital in Excess of Par account is not affected by the sale of treasury stock.

Question 15

The price a corporation pays when it reserves the right to retire or redeem stock at a specific price is the:

Accepted Answer

The term "redemption" in this context refers to the corporation's right to buy back or retire its own stock at a specific price. The price it pays for this right is called the redemption value.

Question 16

When the corporation has only common stock,the total of stockholders' equity divided by the number of shares issued equals:

Accepted Answer

When the corporation has only common stock, the total of stockholders' equity divided by the number of shares issued equals book value per share. This is because common stock represents ownership in the company, and book value per share is a measure of the company's net worth per share of common stock.

Question 17

The price at which shares are bought and sold on the open market is called:

Accepted Answer

The price at which shares are traded on the open market is commonly referred to as the market value. This value is determined by supply and demand in the market and can fluctuate frequently. The book value refers to the value of a company's assets minus its liabilities, while the dividend value refers to the amount of money paid out to shareholders in the form of dividends. The redemption value refers to the amount paid to investors when a security or investment is redeemed or paid back.

Question 18

If a redemption value is not stated,market value is used instead.

Accepted Answer

In the absence of a stated redemption value, the face value or par value is typically used, not the market value.

Question 19

Discuss and describe the major differences among the following common stock values:
a.Par value
b.Stated value
c.Redemption value
d.Market value
e.Book value

Accepted Answer

The answer of Discuss and describe the major differences among...

Question 20

When the corporation has both preferred and common stock,the steps to compute book value for common stock would be:

Accepted Answer

When a corporation has both preferred and common stock, the preferred stockholders have a prior claim on the assets and earnings of the company, so their book value must be calculated first. The remainder of the stockholders' equity is then assigned to the common stock, which would give us the book value for common stock. Therefore, choice B is the correct answer.

Quiz 19: Corporations: Stock Values, dividends, treasury Stocks, and Retained Earnings