Pike Corporation has total stockholders' equity of $8,690,000 as of December 31, 2009. The company has 300,000 shares of $2 par value common stock and 20,000 shares of 8% cumulative preferred stock, $100 par value, outstanding. Due to lower-than-expected net income, no dividends were declared by Pike's board of directors for 2009. The book value per share of common stock is:

Question

Quizplus · Accepted Answer

First, we need to calculate the total value of the preferred stock. Since it is cumulative, we need to account for any unpaid dividends from previous years. 
Total value of preferred stock = (20,000 shares * $100 par value) + (20,000 shares * $8 unpaid dividends) = $2,160,000

Next, we can calculate the total value of the common stock by subtracting the total value of preferred stock from the total stockholders' equity. 
Total value of common stock = $8,690,000 - $2,160,000 = $6,530,000

Finally, we can calculate the book value per share of common stock by dividing the total value of common stock by the number of shares of common stock outstanding. 
Book value per share of common stock = $6,530,000 / 300,000 shares = $21.77

Pike Corporation Has Total Stockholders' Equity of $8,690,000 as of December