Georgia, Inc. has an authorized capital of 1,000 shares of $100 par, 8% cumulative preferred stock and 100,000 shares of $10 par common stock. The equity account balances at December 31, year 2, are as follows:
Cumulative preferred stock $ 50,000
Common stock 90,000
Additional paid-in capital 9,000
Retained earnings 13,000
Treasury stock, common—100 shares at cost (2,000)
$ 160,000
Dividends on preferred stock are in arrears for the year year 2. The book value of a share of common stock at December 31, year 2, should be
Ans: $11.91
Explanation:
This answer is correct. Book value (BV) per share of common stock is: BV per share = Common stockholders’ equity/Outstanding shares. The amount allocated to preferred stock (PS), calculated below, is deducted from total stockholders’ equity to obtain common stockholders’ equity.
Par value of
PS outstanding + 2000 dividends in arrears = Amount allocated to preferred stock
$50,000 + (8%) ($50,000) = $54,000
The remaining unallocated owners’ equity is $106,000 ($160,000 total owners’ equity − $54,000 PS’s share). Georgia has issued 9,000 shares of stock ($90,000 total par value/$10 par per share), and 100 shares are held in treasury, leaving 8,900 shares outstanding. Thus BV per share is $11.91 ($106,000/8,900 shares).
My question is, Why we don't need to allocate APIC to Preferred stock?
REG 90
FAR 95
AUD 98
BEC 84
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