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At December 31, 2010, the Book Value Per Share of Common

Question 164

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At December 31, 2010, the book value per share of common stock of Big Time Corporation amounted to $21 per share. Determine the effect of each of the following items on the book value per share of common stock computation assuming each item occurs after December 31, 2010. Consider each item independently of the other items listed. Indicate your answer for each (I = increase, D = decrease, or NE = no effect)

Premises:
Sale of newly issued shares of common stock at $23 per share
Purchase of treasury stock for $16 per share
Declaration of current cash dividends on preferred stock
Declaration and distribution of stock dividends on common stock
Sale of treasury stock (purchased at $16 per share) for $19 per share
Entry to close net income for the period to the Retained Earnings account
Dividends in arrears on preferred stock
Purchase of a truck with cash
Payment of a previously declared and recorded cash dividend on common stock
Responses:
increase
decrease
no effect

Correct Answer:

Sale of newly issued shares of common stock at $23 per share
Purchase of treasury stock for $16 per share
Declaration of current cash dividends on preferred stock
Declaration and distribution of stock dividends on common stock
Sale of treasury stock (purchased at $16 per share) for $19 per share
Entry to close net income for the period to the Retained Earnings account
Dividends in arrears on preferred stock
Purchase of a truck with cash
Payment of a previously declared and recorded cash dividend on common stock
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