1.

Nova Corporation has an authorized capital of 10,000 shares of ₱100 par, 8% cumulative
preferred stock and 20,000 shares of ₱100 par common stock. The equity account
balances at December 31, 2008 are as follows:

Cumulative preferred stock 500,000

Common stock 1,100,000
Additional paid in capital 200,000
Retained earnings 260,000
Treasury stock, common-1,000 shares at cost (150,000)
Total shareholders' equity 1,910,000

Dividends on preferred stock are in arrears for 2007 and 2008. The book value of a share
of common stock at December 31, 2008 should be:
a. 125
b. 191
c. 133
d. 141

Solution:
Total shareholders' equity 1,910,000
Preference shareholders' equity:
Aggregate par value 500,000
Dividends in arrears (500K x 8% x 2 yrs.) 80,000 (580,000)
Ordinary shareholders' equity 1,330,000 Ordinary shareholders' equity 1,330,000 Divide by: No.
of ordinary sh. outstanding (1.1M / 100par) - 1,000 treasury sh. 10,000 Book value per share
(Ordinary shares) 133.00

3. Georgia, Inc. has an authorized capital of 1,000, ₱100 par, 8% cumulative preference
shares and 100,000, ₱10 par, ordinary shares. The equity account balances at December
31, 20x1, are as follows: Cumulative preference share 50,000 Ordinary share 90,000
Share premium 9,000 Retained earnings 13,000 Treasury shares, ordinary – 100 shares
at cost (2,000) Total 160,000 Dividends on preferred stock are in arrears for the year
20x1. The book value per ordinary share at December 31, 20x1, should be P a g e | 2 a.
11.78 b. 11.91 c. 12.22 d. 12.36 4. Hoyt Corp.’s current balance sheet reports the
following stockholders’ equity: 5% cumulative preference shares, ₱100 par value
250,000 Ordinary share, par value ₱3.50 per share 350,000 Share premium on ordinary
shares 125,000 Retained earnings 300,000 Dividends in arrears on the preference share
amount to ₱25,000. If Hoyt were to be liquidated, the preference stockholders would
receive par value plus a premium of ₱50,000. The book value per ordinary share is a.
7.75 b. 7.50 c. 7.25 d. 7.00 5. Maga Corp.'s shareholders' equity at December 31, 20x1,
comprised the following: 6% cumulative preference share, ₱100 par; liquidating value
 ₱110 per share; authorized, issued, and outstanding 50,000 shares 5,000,000 Ordinary
share, ₱5 par; 1,000,000 shares authorized; issued and outstanding 400,000 shares
2,000,000 Retained earnings 1,000,000 Dividends on preferred stock have been paid
through 20x0 but have not been declared for 20x1. At December 31, 20x1, Maga's book
value per ordinary share was a. 5.50 b. 6.25 c. 6.75 d. 7.50 “When you pass through the
waters, I will be with you; and when you pass through the rivers, they will not sweep
over you. When you walk through the fire, you will not be burned; the flames will not
set you ablaze.” - (Isaiah 43:2) - END - SOLUTIONS:

1. B Solution: Total shareholders' equity 4,950,000 Preference shareholders' equity: Liquidation

value (10,000 shares x ₱105) 1,050,000 Dividends in arrears - (1,050,000) Ordinary
shareholders' equity 3,900,000 Ordinary shareholders' equity 3,900,000 Divide by: No. of
ordinary shares outstanding 30,000 Book value per share (Ordinary shares) 130.00

3. B Solution: Total shareholders' equity 160,000 Preference shareholders' equity: Par value
50,000 Dividends in arrears (50,000 x 8%) 4,000 (54,000) Ordinary shareholders' equity 106,000
Divide by: Ordinary shares outstanding* 8,900 Book value per share (Ordinary shares) 11.91 *
(₱90,000 ÷ ₱10 par) – 100 treasury shares = 8,900 shares 4. D Solution: Total shareholders'
equity 1,025,000 Preference shareholders' equity: Liquidation value (250K par x 50K premium)
300,000 Dividends in arrears 25,000 (325,000) Ordinary shareholders' equity 700,000 Divide by:
Ordinary shares outstanding (350K ÷ ₱3.50) 100,000 Book value per share (Ordinary shares)
7.00 5. A Solution: Total shareholders' equity 8,000,000 Preference shareholders' equity:
Liquidation value (50,000 x ₱110) 5,500,000 Dividends in arrears (5,000,000 x 6%) 300,000
(5,800,000) Ordinary shareholders' equity 2,200,000 Divide by: Ordinary shares outstanding
(350K ÷ ₱3.50) 400,000 Book value per share (Ordinary shares) 5.50