roblem 11-2A (Part Level Submission) The stockholders’ equity accounts of Prongh
ID: 2585850 • Letter: R
Question
roblem 11-2A (Part Level Submission)
The stockholders’ equity accounts of Pronghorn Corp. on January 1, 2017, were as follows.
During 2017, the corporation had the following transactions and events pertaining to its stockholders’ equity.
Dec. 31 Determined that net income for the year was $275,600. Paid the dividend declared on December 1.
Calculate the payout ratio, earnings per share, and return on common stockholders’ equity. (Round earning per share to 2 decimal places, e.g. $2.66 and all other answers to 1 decimal place. 17.5%.)
Preferred Stock (6%, $100 par noncumulative, 5,000 shares authorized) $300,000 Common Stock ($4 stated value, 300,000 shares authorized) 1,000,000 Paid-in Capital in Excess of Par Value—Preferred Stock 15,000 Paid-in Capital in Excess of Stated Value—Common Stock 480,000 Retained Earnings 686,000 Treasury Stock (5,000 common shares) 40,000Explanation / Answer
Effect of transactions on total stockholder's equity: Transaction Increase/ Decrease Amount Issued common stock (5000*30) Increase 150000 Purchase of treasury stock (1000*9) Decrease -9000 Preferred dividend declared and paid Decrease (300000*6%) -18000 Common dividend declared and paid Decrease (255000*0.50) -127500 Net Decrease -4500 Payout ratio=Dividend/Net income Diviend to common stockholders=Number of common stock*0.50 Number of common stock=(Common stock/Stated value)+Additional shares issued=(1000000/4)+5000=255000 shares Diviend to common stockholders=255000*0.50=127500 Payout ratio=127500/275600=0.46262=46.26% Earnings per share=Earnings available to common stockholders/Number of common stock outstanding Earnings available to common stockholder's equity=Net income-Preferred dividend=275600-(300000*6%)=275600-18000=257600 Earnings per share=257600/255000=$1.01 per share Return on common stockholder's equity=(Net income-preferred dividend)/Average common stockholder's equity Average common stockholder's equity=Average total stockholder's equity-Average preferred stockholder's equity Average total stockholder's equity=(Beginning total stockholder's equity+Ending total stockholder's equity)/2 Beginning total stockholder's equity: Preferred stock 300000 Common stock 1000000 Paid in capital in excess of par value- Preferred stock 15000 Paid in capital in excess of par value- Common stock 480000 Retained earnings 686000 Treasury stock -40000 2441000 Ending total stockholder's equity=Beginning total stockholder's equity-Net decrease=2441000-4500=2436500 Average total stockholder's equity=(2441000+2436500)/2=2438750 Average preferred stockholder's equity=(Beginning preferred stockholder's equity+Ending preferred stockholder's equity)/2 During 2017,there is no transaction which affects the preferred stockholder's equity Average preferred stockholder's equity=Beginning preferred stockholder's equity=Ending preferred stockholder's equity Preferred stockholder's equity Preferred Stock 300000 Paid in capital in excess of par value- Preferred stock 15000 315000 Average common stockholder's equity=2438750-315000=2123750 Return on common stockholder's equity=(275600-18000)/2123750=0.12129=12.13%
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