The shareholders' equity section of the Jiminy Corporation on December 31,2017 balance sheet follows: $$\begin{array} { | l | r | }
\hline \text { Contributed capital: } & \
\hline \text { Preferred shares, cumulative, } \$ 3.00,4,000 \text { shares outstanding } & \
\hline \text { liquidation value } \$ 48 \text { per share } & \$ 180,000 \
\hline \text { Common shares, } 50,000 \text { shares outstanding } & 500,000 \
\hline \text { Retained earnings/(deficit) } & ( 100,000 ) \
\hline
\end{array}$$ As of December 31st 2017 there was a total of two years of dividends in arrears on the preferred shares.
What is the book value per share of the common shares on December 31,2017?

Question

The shareholders' equity section of the Jiminy Corporation on December 31,2017 balance sheet follows: $$\begin{array} { | l | r | } 
\hline \text { Contributed capital: } & \
\hline \text { Preferred shares, cumulative, } \$ 3.00,4,000 \text { shares outstanding } & \
\hline \text { liquidation value } \$ 48 \text { per share } & \$ 180,000 \
\hline \text { Common shares, } 50,000 \text { shares outstanding } & 500,000 \
\hline \text { Retained earnings/(deficit) } & ( 100,000 ) \
\hline
\end{array}$$ As of December 31st 2017 there was a total of two years of dividends in arrears on the preferred shares.
What is the book value per share of the common shares on December 31,2017?

Quizplus · Accepted Answer

The book value per share of common shares is calculated as (Total Equity - Preferred Dividends in Arrears) / Number of Common Shares. Total equity is $580,000 ($180,000 + $500,000 - $100,000). Preferred dividends in arrears are $24,000 (2 years x 4,000 shares x $3.00). So, ($580,000 - $24,000) / 50,000 = $7.28.

The Shareholders' Equity Section of the Jiminy Corporation on December