Willow Corporation has retained earnings of $320,000.It has 5,000 shares of 6 percent,$100 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 $50 par value common stock outstanding.Assume all stock is issued at par.The book value of each share of preferred stock is

Question

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The total value of the preferred stock outstanding is:
$100 par value x 5,000 shares = $500,000
Then, we need to add the one year of dividends in arrears:
$100 par value x 5,000 shares x 6% = $30,000
Since the preferred stock is callable at 102, we need to subtract the call price:
$500,000 x 102% = $510,000
Therefore, the total amount that would be paid to preferred stockholders if Willow Corporation were to liquidate is $510,000. 
Subtracting this from the total retained earnings gives us:
$320,000 - $510,000 = -$190,000
This means that if Willow Corporation were to liquidate, they would not have enough funds to pay both the preferred and common stockholders. 
To find the book value of each share of preferred stock, divide the total value by the number of shares outstanding and the par value per share:
($500,000 - $30,000) / 5,000 shares = $94 per share
$94 / 0.6 (6% dividend rate) = $156.67
Therefore, the book value of each share of preferred stock is $156.67 or approximately $108 rounded to the nearest dollar.

Willow Corporation Has Retained Earnings of $320,000