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The Stockholder?s Equity section of the December 31, 2001 balance
sheet for ThanksMate?s Company appeared as follows:

Preferred stock, $30 par value, 5,000 shares authorized, $X shares issued $120,000

Common stock, $X par value, 10,000 shares authorized, 7,000 shares issued $70,000

Additional paid-in capital---Preferred $6,000

Additional paid-in capital---Common $560,000

Additional paid-in capital---Treasury stock $1,000

Total contributed capital $757,000

Retained earnings $40,000

Less: Treasury stock, preferred, 100 shares ($3,200)

Total stockholders? equity $X


Determine the following items, based on ThanksMate?s balance sheet:

1. The number of shares of preferred stock issued
2. The number of shares of preferred stock outstanding
3. The average per-share sales price of the preferred stock when issued
4. The par value of the common stock
5. The average per-share sales price of the common stock when issued
6. The cost of the treasury stock per share
7. The total stockholders? equity
8. The per-share book value of the common stock, assuming that there
are no dividends in arrears and that the preferred stock can be
redeemed at its par value


BONUS
$15 if you explain your working and all the terms
$15 if you reply with an acceptable answer within 72 hours of this posting

Thank you.

Hi again thanksmate-ga,

First, let's define all the terminology used in the questions:

Shares - Certificates or book entries representing ownership in a
corporation or similar entity

Stock - Ownership of a corporation indicated by shares, which
represent a piece of the corporation's assets and earnings.

Preferred stock - A security that shows ownership in a corporation and
gives the holder a claim, prior to the claim of common stockholders,
on earnings and also generally on assets in the event of liquidation.
Most preferred stock pays a fixed dividend that is paid prior to the
common stock dividend, stated in a dollar amount or as a percentage of
par value. This stock does not usually carry voting rights. Preferred
stock has characteristics of both common stock and debt.

Common stock - Securities that represent equity ownership in a
company. Common shares let an investor vote on such matters as the
election of directors. They also give the holder a share in a
company's profits via dividend payments or the capital appreciation of
the security. Units of ownership of a public corporation with junior
status to the claims of secured/unsecured creditors, bondholders and
preferred shareholders in the event of liquidation.

Treasury stock - Common stock that has been repurchased by the company
and held in the company's treasury.

Par value - Also called the maturity value or face value; the amount
that an issuer agrees to pay at the maturity date

Book value per share - The ratio of stockholder equity to the average
number of common shares. Book value per share should not be thought of
as an indicator of economic worth, since it reflects accounting
valuation (and not necessarily market valuation)

Paid-in capital - Capital received from investors in exchange for
stock, but not stock from capital generated from earnings or donated.
This account includes capital stock and contributions of stockholders
credited to accounts other than capital stock. It would also include
surplus resulting from recapitalization.


All of the above terms were defined in Campbell R. Harvey's
Hypertextual Finance Glossary. Just select the first letter of the
term you are looking for and presto! The main page is located at:

http://www.duke.edu/~charvey/Classes/wpg/glossary.htm
(this is definitely a site worth bookmarking)

Now on to your questions:

1. The number of shares of preferred stock issued

The number of preferred shares issued is calculated as follows:

Preferred shares issued = (value of shares issued)/(par value per share)
= 120000/30
= 4000 preferred shares issued

2. The number of shares of preferred stock outstanding

Outstanding preferred stock = issued preferred stock - preferred treasury stock
= 4000 - 100
= 3900 shares of outstanding preferred stock

3. The average per-share sales price of the preferred stock when issued

Per-share sales price, preferred = (Preferred issued value +
additional paid-in capital for preferred)/issued preferred shares
= (120 000 + 6 000)/4000
= $31.50

4. The par value of the common stock

Common stock par value = (Value of issued common shares)/(Number of issued shares)
= 70000/7000
= $10.00

5. The average per-share sales price of the common stock when issued

Average common stock per-share sale price = (Value of issued common
shares + additional common paid-in capital)/(Number of issued shares)
= (70000 + 560000)/7000
= $90

6. The cost of the treasury stock per share

Cost of treasury stock per share = (Total treasury stock value -
additional paid-in capital of treasury shares)/treasury shares
= (3200 + 1000)/100
= 4200/100
= $42.00

7. The total stockholders? equity

Total stockholder equity is the sum of all the elements in the equity
section of the balance sheet, less the treasury stock:

Total contributed capital + Retained earnings - Treasury stock
= 757000 + 40000 - 3200
= $793800

8. The per-share book value of the common stock, assuming that there
are no dividends in arrears and that the preferred stock can be
redeemed at its par value

For this calculation, we first need to remove the book value of
preferred shares from the total stockholder equity, then divide by the
number of outstanding common shares:

= Total stockholder equity - (outstanding preferred shares * preferred par value)
= 793800 - 3900*30
= $676 800

Per share book value (common) = (Total common stock book
value)/(Outstanding common shares)
= 676 800/7000
= $96.69

This should hopefully give you an understanding of how different
classes of shares can be used as equity for a company and how they are
valued. I also wanted to thank you for requesting that I answer your
question specifically :)


Cheers!

answerguru-ga

Met my expectations as usual. Thank you!
If you like, there's another question here ($100) for you:
http://answers.google.com/answers/threadview?id=279592

I was wondering if you had forgotten to deduct some additional PIC
from preferred stock while calculating Common Stockholders' Equity for
the calculation of Book Value per Share. You subtracted the book value
of preferred stock (which I totally agree to). However, I was just
wondering whether that book value should include both the par value
and the paid-in capital because if you only deducted the par value,
then your calculated book value of the common stockholders' equity
would include the part of the additional PIC, preferred stock, as
well.