The shareholders' equity section of the balance sheet for Vivitas Stevia Corporation is shown below:

$\begin{array}{lr}\text { Share capital: }\
\text { Preferred shares, } 10,000 \text { shares authorized, }\
7,000 \text { shares issued of } \$ 3.50 \text { preferred }&\$350,000\
\text { Common shares, } 50,000 \text { shares authorized, }\
\text { 18,000 shares issued } & \underline{180,000} \
\text { Total share capital } & \$ 530,000 \
\text { Retained earnings } & \underline{300,000} \
\text { Total share capital } & \underline{\$ 830,000} \
\end{array}$
Assume there are 2 years' dividends in arrears on the preferred shares, including the current year. The book value per share for Vivitas Stevia common shares is:
A) $26.67
B) $23.94
C) $22.58
D) $26.47

Question

The shareholders' equity section of the balance sheet for Vivitas Stevia Corporation is shown below:

$\begin{array}{lr}\text { Share capital: }\
\text { Preferred shares, } 10,000 \text { shares authorized, }\
7,000 \text { shares issued of } \$ 3.50 \text { preferred }&\$350,000\
\text { Common shares, } 50,000 \text { shares authorized, }\
\text { 18,000 shares issued } & \underline{180,000} \
\text { Total share capital } & \$ 530,000 \
\text { Retained earnings } & \underline{300,000} \
\text { Total share capital } & \underline{\$ 830,000} \
\end{array}$
Assume there are 2 years' dividends in arrears on the preferred shares, including the current year. The book value per share for Vivitas Stevia common shares is:
A) $26.67
B) $23.94
C) $22.58
D) $26.47

Quizplus · Accepted Answer

The book value per share for common shares is calculated by subtracting the preferred shares' equity (including any dividends in arrears) from the total shareholders' equity, then dividing by the number of common shares issued. Here, the preferred shares equity is $350,000. With 2 years' dividends in arrears at $3.50 per share for 7,000 shares, that's an additional $49,000 ($3.50 * 7,000 * 2), making the total preferred equity $399,000. The total shareholders' equity is $830,000. Subtracting the preferred equity ($399,000) from the total equity ($830,000) gives $431,000 for common equity. Dividing by 18,000 common shares issued gives a book value of $23.94 per common share.

The Shareholders' Equity Section of the Balance Sheet for Vivitas