Winston Corporation has retained earnings of $400,000.It has 5,000 shares of 6 percent,$200 par value preferred stock outstanding that is callable at 102.The preferred stock is cumulative,and one year of dividends is in arrears.It also has 10,000 shares of $100 par value common stock outstanding.Assume all stock is issued at par.The book value of each share of common stock is

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To calculate the book value per share of common stock, first calculate the total equity available to common shareholders. Retained earnings are $400,000. The preferred stock dividend in arrears is 1 year of 6% on $200 par value, which is $12 per share, totaling $60,000 for 5,000 shares. Subtract this from retained earnings: $400,000 - $60,000 = $340,000. Divide this by the number of common shares: $340,000 / 10,000 = $34. Add the par value of common stock ($100) to get the book value per share: $100 + $34 = $134. However, since the preferred stock is callable at 102, the call premium (2% of $200 = $4 per share, totaling $20,000 for 5,000 shares) should also be subtracted from retained earnings: $340,000 - $20,000 = $320,000. Divide by 10,000 shares: $320,000 / 10,000 = $32. Add the par value: $100 + $32 = $132.

Winston Corporation Has Retained Earnings of $400,000