Final answer:
To calculate the book value of Meyer's common stock, the retained earnings including this year's net income are adjusted for any unpaid cumulative preferred dividends. The book value of Meyer's common stock is $5,751,000, resulting in a book value of $230.04 per common share.
Step-by-step explanation:
To calculate the book value of Meyer's common stock, we must first navigate through the information provided. Since no dividends were paid this year, the retained earnings would be added to the net income for the year. First, we account for the preferred stock: Meyer has 1,500 shares of 9% preferred stock with a par value of $100, resulting in an annual dividend obligation of 9% × $100 × 1,500, which is $135,000. This amount was not paid and is therefore still owed to the preferred stockholders as cumulative preferred dividends.
Next, the current retained earnings are recalculated by adding this year's net income and any unpaid preferred stock dividends: $5,800,000 (beginning retained earnings) + $86,000 (net income) - $135,000 (unpaid preferred dividends) = $5,751,000.
Therefore, the total book value of Meyer's common stock is the updated retained earnings after settling the preferred dividends obligation: $5,751,000. Since there are 25,000 shares of common stock, we divide this amount by the number of shares to find the book value per common share.
Book value per share = $5,751,000 / 25,000 shares = $230.04 per common share. The total book value of Meyer's common stock is $5,751,000, which equates to a book value of $230.04 per common share.