BOOK VALUE AND PREFERENCE DIVIDENDS

Problem 27-1
Tarr Company reported the following shareholders’ equity on December 31, 2015 :

Preference Share capital - 12%, 50 par, 20,000 shares 1,000,000

Ordinary Share capital, P25 par, 100,000 shares 2,500,000
Share Premium
200,000
Retained Earnings
400,000
Retained Earnings appropriated
100,000
Revaluation Surplus
300,000

Dividends on preference share have not been paid since 2013. The preference share has a
liquidating value of P55 and a call price of P58.
What is the Book Value per preference share ?

a. 61
b. 56
c. 55
d. 58

Solution :
Preference Share
1,000,000
Liquidation Premium - excess of liquidating value over par
(20,000 x 5)
100,000
Preference Dividend for current year (1,000,000 x 12%) 120,000
Total Preference shareholder’s equity 1,220,000

Book Value per preference share (1,220,000/20) 61

Problem 27-2

Hoyt Company rwported the following shareholders equity at year end :

5% cumulative preference share capital, par value

P100 per share: 25,000 shares issued and outstanding 2,500,000
Ordinary Share Capital , par value P35 per share
100,000 shares issued outstanding
3,500,000
Share Premium
 1,250,000
Retained Earnings
3,000,000

Dividends in arrears on the preference share amounted to P250,000 . If the entity were to be
liquidate, the preference shareholders would receive par value plus a premium of
P500,000.

What is the book value per ordinary share ?

a. 77.50
b. 75.00
c. 72.50
d. 70.00