The following information is from the balance sheet of a corporation as of December 31, 2010. Preferred
Dividends are in arrears for the 2009 and 2010.
$\begin{array}{|l|r|}
\hline \begin{array}{l}
\text { Preferred stock, cumulative, } 7 \%, \$ 50 \text { par, } 6,000 \text { shares } \
\text { issued }
\end{array} & \$ 300,000 \
\hline \text { Paid-in capital in excess of par - preferred } & 30,000 \
\hline \text { Common stock, } \$ 5 \text { par, } 20,000 \text { shares issued } & 100,000 \
\hline \text { Paid-in capital in excess of par - common } & 297,500 \
\hline \text { Retained earnings } & \underline{138,500} \
\hline \text { Total stockholders' equity } & \$ 866,000 \
\hline
\end{array}$ What is the book value for the preferred stock?

Question

Quizplus · Accepted Answer

The book value per share of preferred stock is calculated by adding the par value and any paid-in capital in excess of par, then dividing by the number of shares. Here, ($300,000 + $30,000) / 6,000 shares = $55. Additionally, since dividends are in arrears for two years, $7 per share per year for two years is added: $55 + $14 = $69. However, the correct calculation should consider only the arrears for one year, leading to $57 per share.

The Following Information Is from the Balance Sheet of a Corporation