Question

The stockholders’ equity accounts of Riverbed Corp on January 1, 2022, were as follows. Preferred Stock (7%, $100 par noncumulative, 15,000 shares authorized) $900,000 Common Stock ($4 stated value, 900,000 shares authorized) 3,000,000 Paid-in Capital in Excess of Par Value—Preferred Stock 45,000 Paid-in Capital in Excess of Stated Value—Common Stock 1,440,000 Retained Earnings 2,064,000 Treasury Stock (15,000 common shares) 120,000 During 2022, the corporation had the following transactions and events pertaining to its stockholders’ equity. Feb. 1 Issued 15,000 shares of common stock for $90,000. Mar. 20 Purchased 3,000 additional shares of common treasury stock at $7 per share. Oct. 1 Declared a 7% cash dividend on preferred stock, payable November 1. Nov. 1 Paid the dividend declared on October 1. Dec. 1 Declared a $0.50 per share cash dividend to common stockholders of record on December 15, payable December 31, 2022. Dec. 31 Determined that net income for the year was $820,000. Paid the dividend declared on December 1. Determine payout ratio, earnings per share, and return on common stockholders equity.

Answer 1

Required 1

Calculation of Payout ratio

= Dividend -Common Stock / Net Income - common Stock

= $0.50 * ( 750,000 +15,000 - 15,000 - 3,000) / (820,000 - 63,000)

= $373,500 / $757,000

= 49.34%

Required 2

Calculation of Weighted Average Number of shares
Opening shares		750,000
Issued on Feb 1	15000 / 12 *11	16,364
Less: Treasury stock beginning		-15,000
Less Treasury stock purchased on Mar 20	3000 /365 * 286	-2,351
Weighted Number of shares		749,013

EPS = (Net Income - Preferred Dividend) / Weighted Average Number of shares

= (820,000 - 63,000) / 749,013 = $1.0107 per share

Required 3

Return on common stock holders Equity

= (Net Income - Preferred Dividend) / Average common stock holder's equity * 100

Calculation of stockholders equity as at Dec 31, 2022
Particulars	Units	Amount
Preferred stock 7% $100 par value	9,000	900,000
Common Stock ($4 stated value)	750,000	3,000,000
Add: Issued on Feb 1	15,000	60,000
	765,000	3,060,000
Paid in capital in excess of Par value - preferred stock		45,000
Paid in capital in excess of stated value - Common stock		1,440,000
Add: Issued on Feb 1		30,000
		1,470,000
Retained Earning		2,064,000
Less: Preferred Dividend (7% of 900,000)		63,000
Less: Common Dividend (0.50 * 747000 shares)		373,500
Add Net Income		820,000
Closing Retained Earning		2,447,500
Treasury Stock - Common stock	15000	120,000
Add: Purchased on Mar 20 at $7 per share	3000	21,000
	18000	141,000
Total Stockholder's Equity		7,781,500
Total Stockholder's Equity - Common Stock		6,836,500
Total Stockholder's Equity - Common Stock (beginning)		6,384,000
Average Stockholder's Equity - Common Stock		6,610,250

Return on common stock holders Equity = (820,000 - 63,000) / 6,610,250

= 11.45%

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