28) Preferred Stock's Book Value

The book value of one share of preferred stock is its call price plus any dividends in arrears. If a 10%cumulative preferred stock having a par value of $100 has a call price of $110, and the corporation owes a total of two years of dividends, the book value of this preferred stock is $130 per share. If the corporation has 9% noncumulative preferred stock having a par value of $50, a call price of $54, and the corporation owes a total of three years of dividends, its book value is $54 per share (call price of $54 and no dividends in arrears since the stock is noncumulative).

The total book value of the preferred stock is the book value per share times the total number of shares outstanding. If the book value per share of preferred is $130 and there are 1,000 shares of the preferred stock outstanding, then the total book value of the preferred stock is $130,000.

Let's compute the total book value of preferred stock by using the following information:

Stockholders' Equity
Paid-in capital
9% preferred stock, $100 par, 300 shares authorized and issued	$   30,000
Common stock, $0.10 par, 10,000 shares authorized, 2,000 shares issued and outstanding	200
Paid-in capital in excess of par - common	49,800
Total paid-in capital	80,000
Retained earnings	28,000
Total stockholders' equity	$108,000

The call price of the preferred stock is $109. It is cumulative preferred and three years of dividends are owed.

The book value per share of the preferred stock equals the call price of $109 plus three years of dividends at $9 each, or $136 ($109 + $27 = $136).

The total book value for all of the preferred stock equals the book value per share of preferred stock times the number of shares of preferred stock outstanding, or $40,800 ($136 X 300 = $40,800).

29) Common Stock's Book Value

When a corporation has both common stock and preferred stock, the book value of the preferred stock is subtracted from the corporation's total stockholders' equity to arrive at the total book value of the common stock. Using the information above, we have:

Corporation's total stockholders' equity	$ 108,000
Less: Preferred stock's total book value	–  40,800
Common stock's total book value	$ 67,200
Number of shares of common stock outstanding	2,000 shares
Common stock's book value per share	$ 33.60

Earnings per share is not part of stockholders' equity. Nonetheless, we are including an introduction to the topic here because the calculation for earnings per share involves the stock of a corporation.

Earnings per share must appear on the face of the income statement if the corporation's stock is publicly traded. The earnings per share calculation is the after-tax net income (earnings) available for the common stockholders divided by the weighted-average number of common shares outstanding during that period.