Question

Exercise 15-24

Tamarisk Inc. began operations in January 2018 and reported the following results for each of its 3 years of operations.

2018

$261,000 net loss

2019

$41,000 net loss

2020

$830,000 net income

At December 31, 2020, Tamarisk Inc. capital accounts were as follows.

9% cumulative preferred stock, par value $100; authorized, issued,
and outstanding 4,800 shares		$480,000
Common stock, par value $1.00; authorized 1,000,000 shares;
issued and outstanding 688,000 shares		$688,000

Tamarisk Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since Tamarisk began operations. The state law permits dividends only from retained earnings.

(a) Compute the book value of the common stock at December 31, 2020. (Round answers to 2 decimal places, e.g. $38.50.)

Book value per share

$enter a dollar amount of the book value of the common stock at December 31, 2020 rounded to 2 decimal places

(b) Compute the book value of the common stock at December 31, 2020, assuming that the preferred stock has a liquidating value of $104 per share. (Round answers to 2 decimal places, e.g. $38.50.)

Book value per share

$enter the book value per share in dollars rounded to 2 decimal places

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Answer 1

Part a	9% Cumulative preferred Stock, issued and Outstanding		$4,80,000
	Common Stock, issued and Outstanding		$6,88,000
	Retained Earnings:
	Net loss for 2018	-$2,61,000
	Net loss for 2019	-$41,000
	Net Profit for 2020	$8,30,000
	Retained Earnings before dividend		$5,28,000
	Total Shareholders Equity		$16,96,000
	Less:Preferred Stock
	Preferred Dividend for 3 years($480,000*9%*3)	$1,29,600
	Liquidating value of stock at par	$4,80,000
	Equity available for preferred stockholders		$6,09,600
	Equity available for common stockholders		$10,86,400
	Equity available for common stockholders		$10,86,400
	Divided by:No. of outstanding equity shares		$6,88,000
	Book Value per share		$1.58
Part b	9% Cumulative preferred Stock, issued and Outstanding		$4,80,000
	Common Stock, issued and Outstanding		688000
	Retained Earnings:
	Net loss for 2018	-$2,61,000
	Net loss for 2019	-$41,000
	Net Profit for 2020	$8,30,000
	Retained Earnings before dividend		$5,28,000
	Total Shareholders Equity		$16,96,000
	Less:Preferred Stock
	Preferred Dividend for 3 years($480,000*9%*3)	$1,29,600
	Liquidating value of stock at par	$4,99,200
	Equity available for preferred stockholders		$6,28,800
	Equity available for common stockholders		$10,67,200
	Equity available for common stockholders		$10,67,200
	Divided by:No. of outstanding equity shares		688000
	Book Value per share		$1.55