Question

On January 1, 2020, Agassi Corporation had the following stockholders’ equity accounts.

Common Stock ($10 par value, 50,000 shares issued and outstanding)		$500,000
Paid-in Capital in Excess of Par—Common Stock		495,000
Retained Earnings		635,000

During 2020, the following transactions occurred.

Jan. 15		Declared and paid a $1.05 cash dividend per share to stockholders.
Apr. 15		Declared and paid a 10% stock dividend. The market price of the stock was $13 per share.
May 15		Reacquired 2,200 common shares at a market price of $15 per share.
Nov. 15		Reissued 1,100 shares held in treasury at a price of $19 per share.
Dec. 31		Determined that net income for the year was $360,000.

Journalize the above transactions. (Include entries to close net income to Retained Earnings.) (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Incorrect answer iconYour answer is incorrect.

Determine the ending balances for Paid-in Capital, Retained Earnings, and Stockholders’ Equity.

		Ending balances
Paid-in Capital		$
Retained Earnings		$
Stockholders’ Equity

Calculate the payout ratio and the return on common stockholders’ equity. (Round answers to 2 decimal places, e.g. 52.75%.)

Payout ratio		%
Return on common stock equity ratio

Answer 1

(1)

Date	General Journal	Debit	Credit
15-Jan	Cash dividends (50000 * $1.05)	$    52,500
	Cash		$    52,500
15-Apr	Stock Dividends (50000*10%*$13)	$    65,000
	Common Stock (50000*10%*$10)		$    50,000
	Paid-in- Capital in excess of Par		$    15,000
15-May	Treasury Stock (2200 * $15)	$    33,000
	Cash		$    33,000
15-Nov	Cash (1100 * $19)	$    20,900
	Treasury Stock (1100 * $15)		$    16,500
	Paid in Capital from sale of Treasury stock		$      4,400
31-Dec	Income Summary	$ 360,000
	Retained Earnings		$ 360,000
31-Dec	Retained Earnings	$ 117,500
	Cash dividends		$    52,500
	Stock Dividends		$    65,000

(2)

	Ending Balances
Paid in Capital	$              1,064,400
Retained Earnings	$                 877,500
Stockholders Equity	$              1,925,400

Explanations :-

Paid in Capital:-
Beginning Balance ($500000+$495000)	$                 995,000
Stock Dividend on 15 April ($50000+$15000)	$                    65,000
Reissued Treasury stock on 15 Nov	$                      4,400
	$              1,064,400
Retained Earnings:-
Beginning Balance	$                 635,000
Net Income	$                 360,000
Less: Cash Dividend & Stock Dividend	$                 117,500
	$                 877,500
Stockholders Equity:-
Paid in Captal Balance	$              1,064,400
Retained Earnings Balance	$                 877,500
Reissued Treasury stock on 15 Nov	$                    16,500
Less:- Reacquired shares on 15 May	$                    33,000
	$              1,925,400

(3)  

Payout Ratio	32.64%
Return on common stock equity ratio	20.25%

Payout Ratio = Dividend/Net Income * 100

          = ($52500 + $65000)/$360000 * 100 = 32.64%

Return on common stock equity ratio = Net Income/Average common stock * 100

Average common stock = (Beginning + Ending)/2

     = ($1630000 + $1925400)/2 = $1777700

$360000/$1777700 * 100 = 20.25%