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Market Value and Equity Statement

The following is a statement of common shareholders' equity with some numbers missing (in millions of dollars).

Balance, December 31, 2005 ?
Net Income ?
Common Dividends (132)
Preferred Dividends (30)
Issue of Common Stock 155
Unrealized gain on securities held for sale 13
Foreign currency translation loss (9)
Balance, December 31, 2006 ?

a) The market value of the equity was $4,500 million at December 31, 2005, and $5,580 million at December 31, 2006. At both dates, the equity traded at a premium of $2,100 million over the book of the common equity. What was net income for 2006?

b) Fill out the missing numbers in the equity statement and reformulate it to identify comprehensive income for the common shareholders for 2006.


Solution Preview

a) Market Value of Equity has nothing to do with the statement of Shareholder's Equity. However, we need to derive the book value of Shareholder's Equity. It is given that the market value was 2,100 M above the book value. Thus:
Book Value at December 31, 2005 = 4500-2100=2,400
Book Value at December 31, 2006 = 5580-2100=3,480

Ending ...

Solution Summary

The solution answers the question attached.