Unformatted text preview: 000 shares, the par value per
share must be $6. b. Book Value = (Total Stockholders' Equity – Contributed Capital from Preferred
Stockholders) ÷ Number of Common Shares Outstanding
= [($840,000 – $300,000) $50,000] ÷ 45,000 Shares
= $10.89 P12–2 Concluded c. Since 50,000 shares have been issued, and only 45,000 shares are outstanding, 5,000 shares are held in
treasury. The balance of $40,000 in treasury stock represents the cost of these 5,000 shares.
Consequently, the average price of the treasury stock was $8. d. If the company reissues the treasury stock at $10 per share, stockholders' equity would increase by
$50,000 and the company would make the following entry.
Cash (+A) 50,000
Treasury Stock (+SE) 40,000
Additional PaidIn Capital, Treasury Stock (+SE)
Reissued treasury stock.
The company's debt/equity ratio is calculated as Total Debt ÷ Total Stockholders' Equity. This ratio
would decrease, because the numerator would be unchanged, while the denominator would in...
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