Question

The stockholders’ equity accounts of Culver Corporation on January 1, 2022, were as follows.

Answer 1

Answer:

a) Feb. 1 Issued 8,000 shares of common stock for $48,000.

Dr Cash 48,000

    Cr Common stock 32,000

    Cr Paid-in Capital in Excess of Stated Value - Common Stock 16,000

Mar. 20  Purchased 1,600 additional shares of common treasury stock at $7 per share

Dr Treasury stock 11,200

    Cr Cash 11,200

Oct. 1 Declared a 7% cash dividend on preferred stock, payable November 1.

Dr Retained earnings (4,800 x 100 x 7%) 33,600

    Cr Preferred dividends payable 33,600

Nov. 1 Paid the dividend declared on October 1.

Dr Preferred dividends payable 33,600

    Cr Cash 33,600

Dec. 1 Declared a $0.50 per share cash dividend to common stockholders of record on December 15, payable December 31, 2022.

Dr Retained earnings (398,400 x $0.50) 199,200

    Cr Common dividends payable 199,200

Dec. 31 Determined that net income for the year was $450,000. Paid the dividend declared on December 1.

Dr Common dividends payable 199,200

    Cr Cash 199,200

Dr Income summary 450,000

    Cr Retained earnings 450,000

b) T-accounts

Common stock

debit                credit

                       $1,600,000

                       $32,000      

                       $1,632,000

Paid-in capital in excess of par value - common stock

debit                credit

                       $768,000

                       $16,000  

                       $784,000

Treasury stocks

debit                credit

$64,000

$11,200  

$75,200

Retained earnings

debit                credit

                       $1,100,800

$33,600

$199,200

                       $450,000

                       $1,318,000

Preferred stocks

debit                credit

                       $480,000

Paid-in Capital in Excess of Stated Value - Common Stock

debit                credit

                       $24,000

c) Stockholders' equity section

Paid-in capital:

Preferred Stock (7%, $100 par                     $480,000

noncumulative, 8,000 shares authorized)

Paid-in Capital in Excess of Par                    $24,000                 $504,000

Value - Preferred Stock

Common Stock ($4 stated value,               $1,632,000

480,000 shares authorized)

Paid-in capital in excess of par                   $784,000           $2,416,000

value - common stock

Total paid-in capital                                                                   $2,920,000

Retained Earnings                                                                       $1,318,000

Treasury Stock (9,600 common shares)                                    ($75,200)

Total stockholders' equity                                                        $4,162,800

d) payout ratio = dividends per share / EPS

dividends per share = $0.50

EPS = $1.04

payout ratio = $0.50 / $1.04 = 0.48 = 48%

EPS = (net income - preferred dividends) / weighted average shares outstanding

net income = $450,000

preferred dividends = $33,600

weighted average shares outstanding = 400,000 - 8,000 + (8,000 x 11/12) - (1,600 x 79/365) = 398,987

EPS = ($450,000 - $33,600) / 398,987 = $1.0436 ≈ $1.04

return on common stockholders' equity = (net income - preferred dividends) / average stockholder's equity

average stockholders' equity = ($3,404,800 + $3,658,800) / 2 = $3,531,800

return on common stockholders' equity = $416,400 / $3,531,800 = 0.1179 = 11.79%