Caston Company had net income of $5,000,000 for the year ended December 31, 2016

Question

Caston Company had net income of $5,000,000 for the year ended December 31, 2016 along with the following data: Cash 11% Preferred stock, $100 par, $500,000 noncumulative, 75,000 shares authorized; 20,000 shares issued and outstanding $ 2,000,000 Common stock, $1.25 par, 4,000,000 shares authorized; 1,100,000 and 1,050,000 shares issued Additional paid-in capital-preferred Accounts payable Additional paid-in capital-common Short term investment Retained earnings $17,900,000 Treasury stock, 12,000 $1,375,000 $100,000 $200,000 $15,200,000 $10,000,000 $180,000 $200,000 shares of common stock Tax Payable Requirements a. Prepare shareholders' Equities section of the balance sheet. b. Compute ROE for 2016

Explanation / Answer

Solution (a): Calculation of shareholder's equity:

Solution: (b) Calculation of ROE for 2016:

ROE = Net Income/Shareholder's equity

   = 5,000,000/36,395,000 = 0.1373 or 13.73%

Particulars Amount ($) Common stock 1,375,000 11% Preferred stock 2,000,000 Additional-paid-in-capital(preferred) 1,00,000 Additional-paid-in-capital(common) 15,200,000 Retained Earnings 17,900,000 Treasury stock (180,000) Stockholder's Equity 36,395,000

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