Respuesta :
Answer:
Part A) Book Value = $1,080,000
Part B) Book Value = $1,050,000
Explanation:
Part 1: To compute the book value of the common stock at December 31, 2020
To do this, we consider both the preferred and common stock values as follows:
Stockholder's equity:
Preferred Stock = $500,000
Common stock = $750,000
Retained earnings: To calculate retained earnings we need to deduct dividends in arrears to prefered stock holders and then ascribe the remaining value to retained earnings.
Dividend in Arrears= 3 years @ 8% interest per year
= 500,000 x 0.08 x 3= $120,000
Remaining earnings for available to common share holders
= Retained earnings balance- dividend paid to prferred stock holders.
=$800,000 (net income for 2020)- $40,000 (net loss for 2019) - $260,000 (net loss for 2018)
= $800,000-$40,000-$260,000
= $500,000 - Dividend in arrears
= $500,000- $120,000
= $380,000
Book Value of Stockholders' equity
Common Stock equity + Balance of retained earnings
= $700,000 + $380,000
= $1,080,000
The book value per share = $1,080,000/ outstanding shares
= $1,080,000/750,000= $1.44
Part 2: To compute the book value of the common stock at December 31, 2020 Preference stock has liquidating value of $106 per share
Stockholder's equity:
Preferred Stock = $500,000
Preferred stock liquidating premium = (106-100) x 5000
= $6 x 5000= $30,000
Common stock = $750,000
Retained earnings: To calculate retained earnings we need to deduct dividends in arrears to prefered stock holders and then ascribe the remaining value to retained earnings.
Dividend in Arrears= 3 years @ 8% interest per year
= 500,000 x 0.08 x 3= $120,000
Remaining earnings for available to common share holders
= Retained earnings balance- net losses from previous years - dividend paid to prferred stock holders - liquadating premium to preferred stock
=$800,000 (net income for 2020)- $40,000 (net loss for 2019) - $260,000 (net loss for 2018)
= $800,000-$40,000-$260,000
= $500,000 - Dividend in arrears - liquidating
= $500,000- $120,000- $30,000
= $350,000
Book Value of Stockholders' equity
Common Stock equity + Balance of retained earnings
= $700,000 + $350,000
= $1,050,000
The book value per share = $1,080,000/ outstanding shares
= $1,050,000/750,000= $1.4
a. The computation of the book value of Sondgeroth's Common Stock at December 31, 2020, is as follows:
= $1,430,000 ($750,000 + $680,000)
b. The computation of the book value of Sondgeroth's Common Stock at December 31, 2020, assuming that the preferred stock has a liquidating value of $106 per share is as follows:
= $1,430,000 ($750,000 + $680,000 - $530,000).
Data and Calculations:
Financial Results of Morgan Sondgeroth Inc.
2018 2019 2020
Net income (loss) ($260,000) ($40,000) $800,000
Capital accounts:
The par value of Sondgeroth's 8% Cumulative Preferred Stock = $100
The authorized, issued, and outstanding value of 5,000 shares of 8% Cumulative Preferred Stock = $500,000
Common Stock's par value = $1.00
Authorized shares of Common Stock = 1,000,000
Issued and outstanding Common Stock = 750,000
Value of issued and outstanding Common Stock = $750,000
Dividend for 3 years for the cumulative preferred stockholders = $120,000 ($40,000 x 3)
The Retained Earnings at December 31, 2020 = $680,000 ($800,000 - $120,000).
Thus, the liquidating value of the preferred stock at $106 per share is $530,000 ($106 x 5,000).
Learn more about the book value of common stock and the liquidating value of preferred stock here: https://brainly.com/question/15874774 and https://brainly.com/question/16255965
