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Kirk and Kirk, Ltd. began operations in July 2011 and reported the following results for each of its first 3 years of operations.

2011 - $20,000 net income 2012 - $640,000 net loss 2013 - $950,000 net income

At December 31, 2013, Kirk and Kirk, Ltd.'s capital accounts were as follows.

16% cumulative preferred stock, par value $100; authorized, issued, and outstanding 1,000 shares $100,000

Common stock, par value $1; authorized 10,000,000 shares; issued and outstanding 50,000 shares 50,000

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

Instructions:

(a) Compute the book value of the common stock at December 31, 2013.

(b) Compute the book value of the common stock at December 31, 2013, assuming that the preferred stock has a liquidating value of $103 per share.

Accounting Basics, Accounting

  • Category:- Accounting Basics
  • Reference No.:- M945321

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