Chapter 18

Book value per share

Problem 18-1

Evergreen Company provided the following shareholders’ equity at year-end:

Share capital, P100 5,000,000

Share premium 1,000,000
Retained earnings unappropriated 1,500,000
Retained earnings appropriated for contingencies 500,000
Revaluation surplus 800,000

8,800,000

Required:

Compute the book value per share.

Answer:

Share holders’ equity 8,800,000

Divided by: Number of shares outstanding (5,000,000 / P100) 50,000
Book value per share P176

Problem 18-2

Endless Company provided the following shareholders’ equity on December 31, 2019:

Preference share capital, 12% P100 par 1,000,000

Ordinary share capital, P100 4,000,000
Share premium 2,000,000
Retained earnings 1,000,000

Dividends have been paid on the preference share up to December 31, 2017:

Required:

Compute the book value per ordinary share and per preference share under each of the
following conditions with respect to preference share:

a. Cumulative and fully participating

b. Cumulative and fully participating after ordinary share receives 15%
c. Cumulative and participating up to 16%
d. Cumulative and nonparticipating
e. Noncumulative and nonparticipating

Answer:

a. Excess Preference Ordinary

Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000

Preference dividend
(12% x 1,000,000 x 2 years) ( 240,000) 240,000
Ordinary dividend
(12% x 4,000,000) ( 480,000) 480,000

Balance for participation 2,280,000

Preference (1/5 x 2,280,000) 456,000

Ordinary (4/5 x 2,280,000) 1,824,000

Total shareholders’ equity 1,696,000 6,304,000

Divided by shares outstanding 10,000 40,000
Book value per share 169.6 157.6

b. Excess Preference Ordinary

Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000

Preference dividend
(12% x 1,000,000 x 2 years) ( 240,000) 240,000
Ordinary dividend
(15% x 4,000,000) ( 600,000) 600,000

Balance for participation 2,160,000

Preference (1/5 x 2,160,000) 432,000

Ordinary (4/5 x 2,160,000) 1,728,000

Total shareholders’ equity 1,672,000 6,328,000

Divided by shares outstanding 10,000 40,000
Book value per share 167.2 158.2

c. Excess Preference Ordinary

Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000
Preference dividend
(12% x 1,000,000 x 2 years) ( 240,000) 240,000
Ordinary dividend
(12% x 4,000,000) ( 480,000) 480,000

Balance for participation 2,280,000

Preference (4% x 1,000,000) 40,000

Ordinary (2,280,000 – 40,000) 2,240,000

Total shareholders’ equity 1,280,000 6,720,000

Divided by shares outstanding 10,000 40,000
Book value per share 128 168

d. Excess Preference Ordinary

Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000

Preference dividend
(12% x 1,000,000 x 2 years) ( 240,000) 240,000

Balance to common 2,760,000 2,760,000

Total shareholders’ equity 1,240,000 6,760,000

Divided by shares outstanding 10,000 40,000
Book value per share 124 169

e. Excess Preference Ordinary

Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000

Preference dividend
(12% x 1,000,000 x 2 years) ( 120,000) 120,000

Balance to common 2,880,000 2,880,000

Total shareholders’ equity 1,120,000 6,880,000

Divided by shares outstanding 10,000 40,000
Book value per share 112 172

Problem 18-3
Aroma Company reported the following shareholders’ equity on December 31, 2019:

Preference share capital, 12% P50 par 2,000,000

Ordinary share capital, P100 par 4,000,000
Retained earnings (deficit) ( 900,000)

No dividends have been paid on the preference share since 2017.

Required:

Determine the book value per preference share and per ordinary share under the
following conditions with respect to preference share:

a. Preference as to assets

b. Preference as to dividends

Answer:

a. Excess Preference Ordinary

Balance ( 900,000) 2,000,000 4,000,000

Preference dividend
(12% x 2,000,000 x 3 years) ( 720,000) 720,000

Balance to common (1,620,000) (1,620,000)

Total 2,700,000 2,380,000

Divided by shares outstanding 40,000 40,000
Book value per share 67.5 59.5

b. Excess Preference Ordinary

Balance ( 900,000) 2,000,000 4,000,000

Share in deficit:
Preference – 1/3 ( 300,000) ( 300,000)
Ordinary – 2/3 ( 600,000) ( 600,000)

Total 1,700,000 3,400,000

Divided by shares outstanding 40,000 40,000
Book value per share 42.5 85

Problem 18-4
Fair Company reported the following capital balances on December 31, 2019:

Preference share capital, 12% 40,000 shares P50 par 2,000,000

Ordinary share capital, 100,000 shares P50 par 5,000,000
Share premium 2,000,000
Retained earnings 2,000,000

Required:

Calculate the book value per preference share and per ordinary share assuming
preference share has a call price of 55, a liquidation price of 53 and dividends are
unpaid since December 31, 2014.

Answer:
Excess Preference Ordinary

Balance 4,000,000 2,000,000 5,000,000

Liquidation premium
(40,000 shares x P3) ( 120,000) 120,000
Preference dividend
(12% x 2,000,000 x 5 years) (1,200,000) 1,200,000

Balance to common (2,680,000) (2,680,000)

Total 3,320,000 2,320,000

Divided by shares outstanding 40,000 100,000
Book value per share 83 23.2

Problem 18-5
Forever Company showed the following shareholders’ equity on December 31, 2019:

Ordinary share capital, P100 par 5,000,000

Preference share capital, 6% P100 par, cumulative
And participating 3,000,000
Preference share capital, 8% P100 par, noncumulative
And participating 2,000,000
Retained earnings 530,000

Required:
Compute the book value per share for each class of share capital assuming dividends in
arrears are for 3 years. Preference share has preference as to assets or preference
share has preference as to dividend.

Answer:

6% 8%
Excess Preference Preference Ordinary

Balance 530,000 3,000,000 2,000,000 5,000,000

With cumulative rights:
(6% x 3,000,000 x 3) ( 540,000) 540,000
With non-cumulative rights:
(8% x 2,000,000) ( 160,000) 160,000
Current dividends for ordinary
Share (6% x 5,000,000) ( 300,000) 300,000
Balance for participation ( 470,000) ( 470,000)

Total 3,540,000 2,160,000 4,830,000

Divided by share outstanding 30,000 20,000 50,000
Book value per share 118 108 96.6

Problem 18-6

Sunrise Company reported the following shareholders’ equity in December 31, 2019:

Preference share capital, 12% cumulative and fully

Participating P100 par, authorized 20,000 shares,
Issued 15,000 shares of which 1,000 shares are
In the treasury and the last dividend was in 2014 1,500,000
Treasury preference shares, at cost 110,000
Subscribed preference share capital 200,000
Subscription receivable – preference 130,000
Ordinary share capital, par value P100,
Authorized 50,000 shares, issued 30,000 shares
Of which 1,000 shares are reacquired 3,000,000
Treasury ordinary shares, at cost 70,000
Subscribed ordinary share capital 500,000
Subscription receivable – ordinary 200,000
Share premium 300,000
Retained earnings unappropriated 968,000
Retained earnings appropriated 680,000
Required:

Compute the book value per ordinary share and per preference share on December 31,
2019.

Answer:

Preference Ordinary
Issued 1,500,000 15,000 3,000,000 30,000
Subscribed
Problem 18-7

Sunset Company has an authorized share capital of 20,000 P100 par, 8% cumulative
preference shares and 40,000 ordinary shares with P100 par value.

The entity reported the following shareholders’ equity on December 31, 2019:

Cumulative preference share capital 1,000,000

Ordinary share capital 2,200,000
Share premium 400,000
Retained earnings 520,000
Treasury ordinary shares – 2,000 at cost ( 300,000)

3,820,000

Dividends on preference share are in arrears for 2018 and 2019.

Required:

Compute book value per preference share and per ordinary share on December 31,
2019.

Problem 18-8

Susan Company reported the following shareholders’ equity at year-end:

Preference share capital, 12% cumulative, 3 years in

Arrears, and participating, P100 par, 15,000 shares 1,500,000
Ordinary share capital, P100 par, 20,000 shares 2,000,000
Subscribed ordinary share capital, net of subscription
Receivable of P400,000 600,000
Treasury ordinary shares, 5,000 at cost 400,000
Share premium 300,000
Retained earnings 2,040,000
Required:

Compute book value per preference share and per ordinary share.

Problem 18-9

Tania Company reported the following shareholders’ equity at year-end:

Preference share capital, 10% cumulative,

P100 par, 40,000 shares 4,000,000
Ordinary share capital, P50 par, 200,000 shares 10,000,000
Subscribed ordinary share capital, net of subscription
Receivable of P1,500,000 2,000,000
Treasury ordinary shares, 20,000 shares at cost 1,200,000
Share premium 3,000,000
Accumulated profits 5,000,000

Preference dividends have not been paid for 3 years and the preference share has a
P110 liquidation price.

Required:

Compute book value per preference share and per ordinary share.

Problem 18-10

Sunrise Company had the following share capital on December 31, 2019:

Ordinary share capital, P100 par, 50,000 shares 5,000,000

Preference share capital, P50 par, 12% cumulative,
40,000 shares 2,000,000

There are no dividends in arrears on December 31, 2017.

Dividends are distributed to shareholders at P200,000 in 2018 and P600,000 in 2019.

Required:

1. How much dividends should the preference shareholders receive in 2019?

2. How much dividends should the ordinary shareholders receive in 2019?

Problem 18-11

Aim Company reported the following shareholders’ equity on December 31, 2019:

Preference share capital – 10%, noncumulative,

Participating, P100 par, issued 5,000 shares 500,000

Preference share capital, 12% cumulative, participating,

P100 par, issued 10,000 shares 1,000,000

Ordinary share capital, P50 par, issued 30,000 shares 1,500,000

The entity for the first time plans to declare cash dividend. The entity has not paid cash
or share dividend before.

There has been no change in the capital accounts since the entity started operations.

The entity reported the following net income or loss:

2015 300,000 loss

2016 200,000 loss
2017 100,000 loss
2018 350,000 income
2019 1,260,000 income

Required:

1. What is the maximum dividend that can be declared on December 31, 2019?

2. What is the amount of dividends that each class of share capital shall receive on
December 31, 2019?

Problem 18-12

The directors of Dare Company wish to declare a dividend whereby ordinary

shareholders are to receive a dividend of P5 per share.

The entity reported the following shareholders’ equity at year-end:

Preference share capital, P100, 10%, participating up

To 15%, noncumulative, 100,000 shares authorized,
25,000 shares issued 2,500,000
Ordinary share capital, P25 par, 250,000 shares
 Authorized, 200,000 shares issued 5,000,000
Share premium 1,000,000
Retained earnings 4,000,000

Required:

Determine the total amount of dividend that must be declared to meet the per share
dividend goal of the directors.

Problem 18-13

Roma Company provided the following shareholders’ equity at year-end:

Preference share capital, P100 par, 100,000 shares

Authorized and 80,000 shares issued 8,000,000
Ordinary share capital, P50 par, 500,000 shares
Authorized and 200,000 share issued 10,000,000
Share premium 2,000,000
Retained earnings 5,000,000

The preference dividends are in arrears for two years and the preference rate is 12%.
The preference share is cumulative and fully participating.

The board of directors intended to pay cash dividend of P10 per share to ordinary
shareholders.

Required:

Compute the maximum amount of dividend to be declared in order to meet the dividend
objective of the board of directors.

Problem18-14

Hoyt Company reported the following shareholders’ equity at year-end:

5% cumulative preference share capital, par value

P100; 25,000 shares issued and outstanding 2,500,000
Ordinary share capital, par value P35,
10,000 shares issued and outstanding 3,500,000
Share premium 1,250,000
Retained earnings 3,000,000
Dividends in arrears on the preference share amount to P250,000. If the entity were to
be liquidated, the preference shareholders would receive par value par 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

Problem 18-15
Tarr Company reported the following shareholders’ equity on December 31, 2019:

Preference share capital – 12%, P50 par, 20,000

Shares issued 1,000,000
Ordinary share capital, P25 par, 100,000
Shares issued 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 2016. 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

Problem 18-16

Dix Company reported the following shareholders’ equity on December 31, 2019:

8% cumulative preference share capital, P50 par,

Liquidating value P55 per share;
Authorized, issued and outstanding 20,000 shares 1,000,000
Ordinary share capital, P25 par, 200,000 shares
Authorized, 100,000 share issued and outstanding 2,500,000
Retained earnings 400,000
Dividends on preference share have been paid through 2017 but have not been
declared for 2018 and 2019.

What is the book value per ordinary share?

a. 25.00
b. 27.20
c. 26.40
d. 29.00

Problem 18-17

Boe Company revealed the following shareholders’ equity on December 31, 2019:

6% noncumulative preference share capital, P100 par

(Liquidation value P105 per share) 1,000,000
Ordinary share capital, P100 par 3,000,000
Retained earnings 950,000

Preference dividends have been paid up to December 31, 2019.

What is the book value per ordinary share?

a. 131.70
b. 130.00
c. 129.70
d. 128.00

Problem 18-18

Gaza Company has an authorized share capital of 10,000 8% cumulative preference

shares with P100 par value and 100,000 ordinary shares with P10 par value.

The entity reported the following shareholders’ equity at year-end:

Preference share capital 500,000

Ordinary share capital 900,000
Share premium 90,000
Retained earnings 138,000
Treasury ordinary shares – 1,000 at cost ( 20,000)

1,608,000

Dividends on preference share are in arrears for the current year.

What is the book value per ordinary share?

a. 12.00
b. 11.87
c. 18.08
d. 12.45

Problem 18-19

Nova Company has an authorized capital of 10,000 8% cumulative preference shares

with P100 par value, and 20,000 ordinary shares with P100 par value.

The entity reported the following shareholders’ equity on December 31, 2019:

Cumulative preference share capital 500,000

Ordinary share capital 1,100,000
Share premium 200,000
Retained earnings 260,000
Treasury ordinary shares – 1,000 at cost ( 150,000)

1,910,000

Dividends on preference shares are in arrears for 2018 and 2019.

What is the book value of an ordinary share?

a. 125
b. 191
c. 133
d. 141

Problem 18-20

Retro Company reported the following shareholders’ equity at year-end:

12% preference share capital, 20,000 shares,

P100 par value 2,000,000
14% preference share capital, 10,000 shares,
P300 par value 3,000,000
Ordinary share capital, 50,000 shares, P100 par value 5,000,000
Retained earnings 2,240,000
Share premium 1,500,000
The 12% preference share is cumulative and fully participating. The 14% preference
share is noncumulative and fully participating. Dividends have not paid for 3 years.

What is the book value per ordinary share?

a. 132
b. 126
c. 100
d. 112

Problem 18-21

Simplex Company reported the following shareholders’ equity on December 31, 2019:

Preference share capital, 10% cumulative and

Nonparticipating, P100, 20,000 shares 2,000,000
Ordinary share capital, P100 par, 40,000 shares 4,000,000
Subscribed ordinary share capital, 20,000 shares 2,000,000
Subscription receivable 500,000
Share premium 1,000,000
Retained earnings 2,400,000
Treasury ordinary shares, 10,000 at cost 800,000

The preference dividends are in arrears for 2017, 2018 and 2019.

What is the book value per ordinary share?

a. 172
b. 200
c. 160
d. 150

Problem 18-22

On December 31, 2018 and 2019, Carr Company had outstanding 40,000 preference
share with P100 par value and 6% cumulative 200,000 ordinary shares with P10 par
value.

On December 31, 2019, dividends in arrears on the preference shares amounted to

P120,000. Cash dividends declared in 2019 totaled P440,000.

What is the dividend payable on each class of share capital in 2019?

 Preference Ordinary

a. 440,000 0
b. 360,000 80,000
c. 320,000 120,000
d. 240,000 200,000

Problem 18-23

The directors Lora Company wish to declare a dividend whereby ordinary shareholders
are to receive a total per share dividend of P4.

The entity provided the following shareholders’ equity at year-end:

Preference share capital, P100 par, 7% participating

Up to 10%, noncumulative, 100,000 shares
Authorized, 25,000 shares issued 2,500,000
Ordinary share capital, P25 par, 250,000 shares
Authorized and issued 6,250,000
Share premium 1,250,000
Retained earnings 5,000,000

What is the total amount of the dividend that must be declared to meet the per share
goal of the board of directors?

a. 1,175,000
b. 1,700,000
c. 1,000,000
d. 1,250,000

Problem 18-24

Zebra Company reported the following outstanding share capital ay year-end:

 30,000 shares of 10% cumulative preference share, par value P100 per share, fully
participating as to dividends. No dividends were in arrears in prior years.

 200,000 ordinary shares with par value of P10.

The entity declared dividends of P1,000,000 at year-end.

What was the amount of dividends payable to ordinary shareholders?

a. 200,000
b. 700,000
c. 400,000
d. 600,000

Problem 18-25

Culture Company reported the following share capital outstanding on December 31,
2019:

Ordinary share capital, P20 par value, 200,000

Shares outstanding 4,000,000
Preference share capital, 6% P100 par value, cumulative
And fully participating, 10,000 shares outstanding 1,000,000

Preference dividends have been in arrears for 2017, 2018 and 2019. On December 31,
2019, a total cash dividend of P900,000 was declared.

What amount should be recognized as dividend payable on the preference and ordinary
shareholders, respectively?

a. 324,000 and 576,000

b. 220,000 and 672,000
c. 276,000 and 624,000
d. 180,000 and 720,000

Problem 18-26

The shareholders’ equity of High Company included P3,000,000 of P10 par ordinary
share capital and P6,000,000 of 6% P50 par cumulative preference share capital. The
board on directors declared cash dividends of P900,000 in 2019 after paying P300,000
cash dividends in 2018 and P500,000 in 2017.

1. What amount of cash dividends was received by preference shareholders in 2019?

a. 360,000
b. 420,000
c. 600,000
d. 450,000

2. What amount of cash dividends was received by ordinary shareholders in 2019?

a. 480,000
b. 540,000
c. 300,000
 d. 450,000

Problem 18-27

Crystal Company provided the following shareholders’ equity on December 31, 2019:

Ordinary share capital, P10 par 50,000,000

Preference share capital, P100 par, 5% cumulative 100,000,000

There were no changes in share capital outstanding since the first year of operation on
2017. The entity paid cash dividends of P3,000,000 in 2017, P4,000,000 in 2018 and
P12,000,000 in 2019.

1. What amount was received as cash dividends by preference shareholders in 2019?

a. 8,000,000
b. 5,000,000
c. 3,000,000
d. 4,000,000

2. What amount was received as cash dividends by ordinary shareholders in 2019?

a. 7,000,000
b. 4,000,000
c. 5,000,000
d. 6,000,000

Problem 18-28

Tunn Company revealed the following shareholders’ equity on December 31, 2019:

12% nonparticipating, noncumulative preference share

Capital, par value of P100, 10,000 shares 1,000,000
10% fully participating, cumulative preference share
Capital, par value of P100, 25,000 shares 2,500,000
Ordinary share capital, par value of P100, 75,000 shares 7,500,000

The entity has not paid a cash or stock dividend before. There was no change in the
capital balance since the entity started operations five years ago.

The entity reported net loss for 2015, 2016 and 2017 at P1,500,000, P1,000,000 and
P500,000, respectively, and net income for 2018 and 2019 at P1,750,000 and
P6,250,000, respectively.
The maximum amount available for dividend on December 31, 2019 is declared and
paid.

What amount of dividend should be distributed to

1. Ordinary shareholders?

a. 3,750,000
b. 2,910,000
c. 500,000
d. 750,000

2. 12% preference shareholders?

a. 120,000
b. 600,000
c. 300,000
d. 0

3. 10% preference shareholders?

a. 1,250,000
b. 1,970,000
c. 720,000
d. 250,000

Problem 18-29

1. Which of the following shareholder rights is most commonly enhanced in an issue of

preference shares?

a. The right to vote for the board of directors

b. The right to maintain one’s proportional interest.
c. The rights to receive a full cash dividend before dividends are paid to other
classes of share capital.
d. The right to vote on major corporate issues.

2. Preference shares participating ratably with the ordinary shareholders in any profit
distribution beyond the prescribed preference rate.

a. Cumulative feature
b. Participating feature
c. Callable feature
d. Redeemable feature
3. Which feature of preference share would most likely be opposed by ordinary
shareholders?

a. Convertible
b. Callable
c. Redeemable
d. Participating

4. Noncumulative preference dividends in arrears

a. Are not paid and not disclosed.

b. Must be paid before any other cash dividends can be distributed.
c. Are disclosed as liability until paid.
d. Are paid to preference shareholders if sufficient funds remain after payment of
ordinary dividend.

5. How should cumulative preference dividends in arrears be reported?

a. Note disclosure
b. Increase in shareholders’ equity
c. Increase in current liabilities
d. Increase in noncurrent liabilities