Mendell, Inc., is a corporation in which all of the outstanding preferred and common stock is held by the four Lehman brothers. The brothers have an agreement stating that the remaining brothers will, upon the death of a brother, purchase from the estate his holdings of stock in the company at book value.
The stockholders” equity section of the balance sheet for the company on 2009 December 31, the date of the death of James Lehman, shows:
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Stockholders” equity: |
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Paid-in capital: |
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Preferred stock—6%; $320 par value; $320 liquidation value, |
$1,280,000 |
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4,000 shares authorized, issued, and outstanding |
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Paid-in capital in excess of par—preferred |
64,000 |
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Common stock—without par value, $16 stated value, |
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60,000 shares authorized, issued and outstanding |
960,000 |
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Paid-in capital in excess of par value—common |
960,000 |
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Total paid-in capital |
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$3,264,000 |
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Retained earnings |
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128,000 |
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Total stockholders” equity |
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$3,392,000 |
No dividends have been paid for the last year on the preferred stock, which is cumulative. At the time of his death, James Lehman held 2,000 shares of preferred stock and 10,000 shares of common stock of the company.
a. Compute the book value of the preferred stock.
b. Compute the book value of the common stock.
c. Compute the amount the remaining brothers must pay to the estate of James Lehman for the preferred and common stock that he held at the time of his death.