Reference no: EM133093563

Question - St. Fausto, Inc. began operations in January 20X1 and reported the following results for each of its 3 years of operations: 20X1 - net loss of P260,000; 20X2 - net loss of P40,000; 20X3 - net income of P700,000

At December 31, 20X3, Johnstone Inc. share capital accounts were as follows:

6% cumulative preference share capital; par value P100; authorized, issued and outstanding 5,000 shares P500,000

Ordinary share capital, par value P1.00; authorized 1,000,000 shares; issued and outstanding 750,000 shares 750,000

Of the retained earnings balance, P150,000 are appropriated for sinking fund requirements. In addition, the revaluation surplus account has a credit balance of P67,500.

St. Fausto has never paid a cash or share dividend. There has been no change in the share capital accounts since St. Fausto began operations. The law permits dividends only from retained earnings.

Required -

1. Compute the book value of the preference and ordinary shares at December 31, 20X3.

2. Compute the book value of the ordinary share at December 31, 20X3, assuming that the preference shares have a liquidating value of P106 per share and a call price of P110 per share.