Problem 11-2A (Part Level Submission) The stockholders\' equity accounts of Flin
ID: 2590811 • Letter: P
Question
Problem 11-2A (Part Level Submission) The stockholders' equity accounts of Flint Corporation on January 1, 2017, were as follows. Preferred Stock (8%, $100 par noncumulative, 5,000 shares authorized) Common Stock ($4 stated value, 300,000 shares authorized) Paid-in Capital in Excess of Par Value-Preferred Stock Paid-in Capital in Excess of Stated Value-Common Stock Retained Earnings Treasury Stock (5,000 common shares) $300,000 1,000,000 15,000 480,000 686,500 40,000 During 2017, the corporation had the following transactions and events pertaining to its stockholders' equity. Feb. 1 Issued 5,000 shares of common stock for $30,000 Mar. 20 Purchased 1,000 additional shares of common treasury stock at $7 per share. Oct. 1 Declared a 8% cash dividend on preferred stock, payable November 1. Nov. 1 Paid the dividend declared on October 1. Dec. 1 Declared a $0.60 per share cash dividend to common stockholders of record on December 15, payable December 31, 2017. Dec. 31 Determined that net income for the year was $276,100. Paid the dividend declared on December 1.Explanation / Answer
d. Computation of Payout ratio, Earnings per share and return on common shareholder's equity:
Formula for payout ratio = Total dividends / net income
= {(1,000,000/4par value) + 5,000 – (5,000 + 1,000)] * $0.60/ 276,100 (given)
= 149,400 / 276,100 = 54.1%
Earnings per share = net income - Dividend paid to preference shareholder's / Average common shares outstanding
= 276,100 - (300,000*8%) / {(250,000-5,000)+(255,000-6,000)/2}
= 276,100 - 24,000 / (245,000+249,000)/2
= 252,100 / 245,500
= 1.03 is the EPS
Return on common shareholder's equity = net income - Dividend paid to preference shareholder's / Average common shareholder's equity
we already calculated net income - Dividend paid to preference shareholder's
= 276,100 - (300,000*8%) = 252,100
Let us calculated Average common shareholder's equity = beginning equity + ending equity / 2
Beginning equity = (1,000,000+480,000+686,500-40,000) =2,126,500
ending equity = (1,000,000+20,000new shares issed 5000shares*$4) + (480,000+10,000 addition paid in capital (i.e.,30,000-20,000)) + (686,500+276,100 net income- 149,400 equity dividend-24,000 preferred dividend) - (40,000+7,000 purchased additional treasury stock)
=(1,020,000 + 490,000 +$789,200 –47,000) = 2,252,200
Average common equity = 2,126,500 + 2,252,200 / 2 = 2,189,350
Therefore, Return on common shareholder's equity = 252,100 / 2,189,350 = 11.51%