Linzey Corporation has provided the following data: The company's net income in Year 2 was $33,000. The company's book value per share at the end of Year 2 is closest to:
A) $22.45 per share
B) $12.45 per share
C) $0.55 per share
D) $15.45 per share

Question

Linzey Corporation has provided the following data:  The company's net income in Year 2 was $33,000. The company's book value per share at the end of Year 2 is closest to:
A) $22.45 per share 
B) $12.45 per share 
C) $0.55 per share 
D) $15.45 per share

Quizplus · Accepted Answer

Book value per share is calculated by dividing the total shareholders' equity by the number of shares outstanding. The formula for book value per share is:

Book value per share = Total shareholders' equity / Number of shares outstanding

Since no information is provided about the number of shares outstanding, we cannot calculate the exact book value per share. However, we can estimate it using the following formula:

Book value per share = (Total shareholders' equity - Preferred dividends) / Number of common shares outstanding

We are given that the company had a net income of $33,000 in Year 2. We can use this information, along with the given financial statement items, to calculate the total shareholders' equity at the end of Year 2:

Total shareholders' equity = Total assets - Total liabilities 
Total shareholders' equity = $204,000 - $98,000 = $106,000

We are not given any information about preferred dividends, so we will assume that they are $0.

We are not given the number of common shares outstanding, so we cannot calculate the exact book value per share. However, we can estimate it by assuming that the company did not issue any new shares during Year 2, and that the number of common shares outstanding is the same as it was at the end of Year 1.

From the balance sheet for Year 1, we can see that the number of common shares outstanding was 6,000.

Therefore, the estimated book value per share at the end of Year 2 is:

Book value per share = ($106,000 - $0) / 6,000 = $17.67

The closest choice is D) $15.45 per share, which is within the range of the estimated book value per share.

Linzey Corporation Has Provided the Following Data: the Company's