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15 - 34 Test Bank for Intermediate Accounting, Twelfth Edition
Ex. 15-124
(cont.)
Instructions
Compute (assume no changes in balances during the past year):
(a) Total amount of stockholders’ equity in the balance sheet
(b) Earnings per share of common stock
(c) Book value per share of common stock
(d) Payout ratio of common stock
(e) Return on common stock equity
Solution 15-124
(a)
(5,000 × $100) + (60,000 × $10) + $200,000 + $135,000 + $150,000 – $125,000
= $1,460,000.
(b)
[$370,000 – (5,000 × $100 × 8%)] ÷ (60,000 – 5,000) = 330,000 ÷ 55,000
= $6.00 per share.
(c)
($1,460,000 – $500,000) ÷ (60,000 – 5,000) = $960,000 ÷ 55,000 = $17.45 per share.
(d)
$2.70 ÷ $6 = 45% or [($2.70 × 55,000) ÷ ($370,000 – $40,000)].
(e)
($370,000 – $40,000) ÷ ($1,460,000 – $500,000) = 34.4%.
*Ex. 15-125—Dividends on preferred stock.
The stockholders' equity section of Knott Corporation shows the following on December 31, 2007:
Preferred stock—6%, $100 par, 4,000 shares outstanding
Common stock—$10 par, 60,000 shares outstanding
Paid-in capital in excess of par
Retained earnings
Total stockholders' equity
$ 400,000
600,000
200,000
114,000
$1,314,000
Instructions
Assuming that all of the company's retained earnings are to be paid out in dividends on 12/31/07
and that preferred dividends were last paid on 12/31/05, show how much the preferred and
common stockholders should receive if the preferred stock is cumulative and fully participating.
*Solution 15-125
Dividends in arrears (6% of $400,000)
Current year's dividends
Participating dividend (3%)
($30,000 ÷ $1,000,000)
Preferred
$24,000
24,000
Common
$ —
36,000
Total
$ 24,000
60,000
12,000
$60,000
18,000
$54,000
30,000
$114,000