The common stock of Bishop Corporation is selling on a stock exchange for $ 90 p

ID: 2709668 • Letter: T

Question

The common stock of Bishop Corporation is selling on a stock exchange for $ 90

per share. The stockholders' equity of the corporation at December 31, 20x9

consists of:

Stockholders' equity:

Paid-in capital:

Preferred stock—9% cumulative,

$120 par value, $120 liquidation value,

3,000 shares authorized, issued, and outstanding $360,000

Common stock—$72 par value, 30,000 shares authorized, issued and

outstanding 2,160,000

Total paid-in capital 2,520,000

Retained earnings 354,000

Total stockholders' equity 2,874,000

Assume that in liquidation the preferred stock is entitled to par value plus

cumulative unpaid dividends.

a. What is the total market value of all of the corporation's common stock?

b. If all dividends have been paid on the preferred stock as of December 31,

20x9, what are the book values of the preferred stock and the common stock?

c. If two years' dividends were due on the preferred stock as of December 31,

20x9, what are the book values of the preferred stock and common stock?

(a) Total market value of all of the corporation's common stock = $2160000 + (Retained Earnings $354000) = $2514000

(b)

Book value of the preferred stock will be = $360000

Book value of common stock = 2160000 + (Retained earnings after payment of preference dividend $321600) = $2481600

(c)

Book value of the preferred stock will be = $360000 + (Arrear dividends $64800) = $424800

Book value of common stock = 2160000 + (Retained earnings $354000) = $2514000

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