Intermediate Accounting 3

1. Chapter 5: Book Value per Share

5. Assessment Tasks (NOTE: Please show your computation)

Use the following information for the next three questions:

1. Caroline co.'s equity structure at December 31, 20x1 is below:

10% Preference sh., P100 par (liquidation value per share) 1,000,000
Ordinary shares, P100 par 3,000,000
Subscribed share capital – ordinary shares 100,000
Subscription receivable (60,000)
Retained earnings 900,000
Treasury shares (at cost) – 2,000 ordinary shares. (260,000)
Total shareholders ' equity 4,680,000

Requirement: Using the following independent cases below, compute for the book value per preference share
and per ordinary share.
a. The preference shares are cumulative. Dividends are in arrears for three years.
b. The preference shares are noncumulative. Dividends are in arrears for three years.
c. The preference shares are cumulative. All dividends are paid up to end of the current year.

2. The shareholders' equity of ABC Construction, Inc. on December 31, 20x1 includes the following:

8% Preference shares, 20,000 shares, P100 par value 3,000,000

10% Preference shares, 10,000 shares, P300 par value 4,500,000
Ordinary shares, 50,000 shares, P100 par value 7,500,000
Share premium in excess of par 2,250,000
Retained earnings 3,350,000
Total shareholders' equity 20,600,000

The 8% stock is cumulative and fully participating. The 10% stock is noncumulative and fully participating.
Dividends have not yet been paid for 3 years.

Requirement: Compute for the book value per ordinary share.

Use the following information for the next three questions:

3. Fraulein Co. equity structure at December 31, 20x1 is shown below:

8% Preference sh., P200 par (liquidation value P250 per share) 1,200,000
Ordinary shares, P100 par 3,600,000
Subscribed share capital – ordinary shares 400,000
Subscription receivable (80,000)
Retained earnings 1,080,000
Treasury shares (P80 cost per share) (300,000)
Total shareholders' equity 5,900,000

Requirement: Using the following independent cases below, compute for the book value per preference share
and per ordinary share.
a. The preference shares are cumulative. Dividends are in arrears for four years.
b. The preference shares are noncumulative. Dividends are in arrears for four years.
c. The preference shares are cumulative. All dividends are paid up to end of the current year.

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Chapter 4 | Intermediate Accounting 3
4. The stockholders' equity of Retro Company on December 31, 2008 includes the following:

12% Preferred stock, 20,000 shares, P100 par value 2,000,000

14% Preferred stock, 10,000 shares, P300 par value 3,000,000
Common stock, 50,000 shares, P 100 par value 5,000,000
Retained earnings 2,240,000
Additional paid in capital 1,500,000

The 12% stock is cumulative and fully participating. The 14% stock is noncumulative and fully participating.
Dividends have not yet been paid for 3 years.

Requirement: Compute for the book value per ordinary share.

5. CORPULENT FAT Co.'s shareholders' equity at year-end consisted of the following:

Share capital, P40 par, 100,000 shares issued 4,000,000

Subscribed share capital 2,000,000
Share premium 1,480,000
Subscription receivable (800,000)
Retained earnings 2,640,000
Revaluation surplus 560,000
Cumulative translation losses on foreign operation (400,000)
Treasury shares, at cost, 10,000 shares (280,000)
Total shareholders' equity 9,200,000

Requirement: How much is the book value per share?

6. The shareholders' equity of STATUTE LAW Co. as of year-end consisted of the following:

Preference Share, 10% cumulative, P400 par, 20,000 shares 8,000,000

Ordinary share, P40 par, 100,000 shares issued 4,000,000
Retained earnings 3,280,000
Total shareholders ' equity 15,280,000

Dividends are in arrears for three years.

Requirements:
a. How much is the book value per preference share?
b. How much is the book value per ordinary share?

7. Manuel Santander Inc. began operations in January 2012 and reported the following results for each of its 3
years of operations.

2012 P260,000 net loss

2013 P40,000 net loss
2014 P800,000 net income

At December 31, 2014, Manuel Santander Inc. capital accounts were as follows.

8% cumulative preferred stock, par value P100; authorized, issued, and outstanding 5,000 shares P500,000
Common stock, par value P1.00; authorized 1,000,000 shares; issued and outstanding 750,000 shares P750,000

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

Instructions
a. Compute the book value of the common stock at December 31, 2014.
b. Compute the book value of the common stock at December 31, 2014, assuming that the preferred stock
has a liquidating value of P106 per share.

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Chapter 4 | Intermediate Accounting 3
 8. Shown below is the liabilities and stockholders’ equity section of the balance sheet for Jana Katigbak
Company and Mary Ann Balmes Company. Each has assets totaling P4,200,000.

Jana Katigbak Co. Mary Ann Balmes Co.

For the year, each company has earned the same income before interest and taxes.

Katigbak Co. Balmes Co.

At year end, the market price of Katigbak’s stock was P101 per share, and Balmes’s was P63.50.

Instructions
a. Which company is more profitable in terms of return on total assets?
b. Which company is more profitable in terms of return on common stock equity?
c. Which company has the greater net income per share of stock? Neither company issued or reacquired
shares during the year.
d. From the point of view of net income, is it advantageous to the stockholders of Jana Katigbak Co. to have
the long-term debt outstanding? Why?
e. What is the book value per share for each company?

6. References
Louwers, T. et al 2015. Auditing & Assurance Services. McGraw-Hill Publishing Salosagcol,
J. et al 2014. Auditing Theory. GIC Enterprises & Co., Inc.

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Chapter 4 | Intermediate Accounting 3
ISUE__ __ Syl ___
Revision: 02
Effectivity: August 1, 2020

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Chapter 4 | Intermediate Accounting 3