Question

The stockholders' equity accounts of Cyrus Corporation on January 1, 2017, were as follows.

Answer 1

Answer:

Cyrus Corporation:

Answers to A & B are enclosed in the attachment.

C) Stockholders' Equity:

Authorized Capital 300,000 at $4 par

Issued Common Stock 255,000 units at $4 par = $1,020,000

7% Preferred Stock 3,000 units at $100 par  = $300,000

APIC - Preferred Stock  = $15,000

APIC - Common Stock = $487,000

Retained Earnings = $825,000

Less Treasury Stock, 11,000 units at $4 par = $44,000

Total = $2,603,000

D) i) Payout Ratio = Dividends/Net Income x 100 = $122,000/$280,000 x 100 = 43.57%

ii) Earnings per share = Net Income/Number of Common Stock outstanding = $280,000/244,000 = $1.15

iii) Return on Common Equity = Net Income/Shareholders' Equity x 100

= $280,000/2,588,000 x 100 = 10.82%

Explanation:

a) Journal entries show which account is to be debited and which is to be credited in accordance with the double entry system of bookkeeping.

b) T-Ledger is the tool that accumulates all the transactions of each account in order to arrive at the closing balance for the period.

c) Treasury Stock was treated using the par value method.  This method recognizes the excess paid to repurchase treasury stocks in the Additional Paid-in Capital account.  The other method is the cost method, which deducts the whole costs in the Common Equity.

d) To calculate the payout ratio, earnings per share, and return on equity, we have only considered common stockholders.  They are the common equity holders.  Preferred stockholders are not equity holders.

e) The payout ratio shows the proportion of net income paid out as dividends.

f) Earnings per share are the net income divided by outstanding common stock.  Outstanding of 244,000 shares remained; i.e. (issued common stock of 255,000 minus treasury stock  of 11,000).  This formed the basis for calculating common stock dividends.

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