Common Stock , $1 par $2,100,000 Paid-in Capital in Excess of Par – Common Stock
ID: 2600356 • Letter: C
Question
Common Stock , $1 par
$2,100,000
Paid-in Capital in Excess of Par – Common Stock
550,000
Preferred 8 ½ % Stock, $50 par
1,700,000
Paid-in Capital in Excess of Par—Preferred Stock
950,000
Retained Earnings
2,350,000
Treasury Common Stock (25,000 shares)
250,000
Please show calculations:
6 For purposes of return on common equity, what is the denominator of the ratio (assume last year’s numbers were the same)?
7. If the company used the retirement method, what would be the balance in owners’ equity?
8. What is the average price that investors paid for each common share?
9. What is the average price that investors paid for each preferred share?
10. What is the average price that the company paid for each repurchased share?
11. Reconstruct the journal entry for the purchase of treasury stock.
12. Reconstruct the journal entry for the repurchase of shares if the company used the retirement method.
Common Stock , $1 par
$2,100,000
Paid-in Capital in Excess of Par – Common Stock
550,000
Preferred 8 ½ % Stock, $50 par
1,700,000
Paid-in Capital in Excess of Par—Preferred Stock
950,000
Retained Earnings
2,350,000
Treasury Common Stock (25,000 shares)
250,000
Explanation / Answer
Answers
6) Return on common equity = Net income/ Shareholders Equity
Shareholders equity is average common shareholders equity and does not include preferred shareholder. Retained earning is also included in the calculation as it is the amount of earning that is available to stockholders. Company may return some of the capital back to shareholder which is often term as buy back of shares or treasury common stock.So the formula is as follow
Shareholders equity= Share capital+ retained earning- treasury shares
=$2,100,000+$550,000+$2,350,000-250,000=$4,750,000
7) Owners equity using retirement method =
when share was issue the entry would have been
cash A/c Dr $2,650,000
Cr Common stock $2,100,000
Cr additional paid capital-common stokc $550,000
When 25000 share brough back the entry would be
Common stock a/c Dr $25,000
Additional paid capital common stock Dr $65,476
Retained earning Dr $159,524
Treasury stock cr $250,000
Owners equity = common stock+ additional paid in capital+preferred stock+additional paid in capital (preferred stock)+ retained earning-treasury stock=$2,100,000+550,000+1,700,000+950,000+2,350,000-250,000=$7,400,000
8) average price paid = (common share at par + additional paid in capital)/no of shares= ($2,100,000+$550,000)/210,000=$12.62
9)average price for preferred share = (preferred share at par+ additional paid in capital)/no of preferred share
=(1,700,000+950,000)/34,000=$77.94
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.