When a Company Has Both Common Stock and Preferred Stock

question 163

Multiple Choice

When a company has both common stock and preferred stock, the book value per share of common stock is calculated by:

• A)dividing the amount in the common stock account by the number of shares of common stock outstanding.
• B)dividing the amount in the common stock account by the sum of the number of shares of common stock and preferred stock outstanding.
• C)dividing total stockholders' equity less preferred equity by the number of shares of common stock outstanding.
• D)dividing total stockholders' equity by the number of shares of common stock outstanding.

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Definitions:

Composition

The arrangement or makeup of something, often referred to in the context of artistic elements or financial mixtures.

Subordination

A ranking of priorities in claims for ownership or interest; often used in debt agreements to determine the sequence of payments.

Extension

In finance, an agreement to extend the maturity date or due date of a financial instrument or loan.

Insolvency

A financial condition where an individual or entity cannot meet their debt obligations as they come due.