(Computation of Book Value per Share) Morgan Sondgeroth Inc. began operations in January

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

Instructions

(a) Compute the book value of the common stock at December 31, 2007.

(b) Compute the book value of the common stock at December 31, 2007, assuming that the preferred stock has a liquidating value of $106 per share.

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2005 $260,000 net loss 2006 $40,000 net loss 2007 $800,000 net income At December 31, 2007, Morgan Sondgeroth Inc. capital accounts were as follows. 8% cumulative preferred stock, par value $100; authorized, issued, and outstanding 5,000 shares Common stock, par value $1.00; authorized 1,000,000 shares; issued and outstanding 750,000 shares $500,000 $750,000