(Computation of Book Value per Share) John stone Inc. began operations in January 2009 and reported the following results for each of its 3 years of operations.2009 $260,000 net loss 2010 $40,000 net loss 2011 $700,000 net income At December 31, 2011, John stone Inc. capital accounts were as follows.
6% cumulative preferred stock, par value $100; authorized, issued,and outstanding 5,000 shares $500,000
Common stock, par value $1.00; authorized 1,000,000 shares;
issued and outstanding 750,000 shares $750,000
John stone Inc. has never paid a cash or stock dividend. There has been no change in the capital accounts since John stone began operations. The state law permits dividends only from retained earnings.
(a) Compute the book value of the common stock at December 31, 2011.
(b) Compute the book value of the common stock at December 31, 2011, assuming that the preferred stock has a liquidating value of $106 per share.