Assets Liabilities and Stockholders' Equity
Gallinas Industries Balance Sheet December 31
Assets Liabilities and Stockholders' Equity
Cash $30,000 Accounts payable $70,380
Marketable securities 70,380 Notes payable 46,920
Accounts receivable 125,120 Accrued wages 46,920
Inventories 101,660 Total current liabilities $164,220
Total current assets $327,160 Long-term debt $ 179,860
Land and buildings (net) $170,565 Preferred stock $ 93,840
Machinery and equipment 284,275 Common stock (10,000 shares) . $226,780
Total fixed assets (net) 454,840 Retained earnings 117,300
Total assets$ 782,000 Total liabilities and stockholders'-
equity$ 782,000
Additional information:
1. Preferred stock can be liquidated at book value.
2. Accounts receivable and inventories can be liquidated at 94% of book value. 3. The firm has 10,000 shares of common stock outstanding.
4. All interest and dividends are currently paid up.
5. Land and buildings can be liquidated at 125% of book value.
6. Machinery and equipment can be liquidated at 73% of book value.
7. Cash and marketable securities can be liquidated at book value.
Given this information, answer the following:
(a) What is Gallinas Industries' book value per share?
(b) What is its liquidation value per share?
(c) Compare, contrast, and discuss the values found in parts (a) and (b). Select the best answer below.
A. Liquidation value is below book value per share and represents the minimum value for the firm. It is possible for liquidation value to be greater than book value if assets are undervalued.
B. Liquidation value is below book value per share and represents the maximum value for the firm. It is possible for liquidation value to be greater than book value if assets are undervalued.
C. Liquidation value is greater than the book value per share and represents the minimum value for the firm. It is possible for liquidation value to be greater than book value if assets are undervalued.
D. Liquidation value is below book value per share and represents the maximum value for the firm. It is possible for liquidation value to be greater than book value if assets are overvalued.
Answers: 1
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Gallinas Industries Balance Sheet December 31
Assets Liabilities and Stockholders' Equity
Assets Liabilities and Stockholders' Equity
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