Question

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

Preferred Stock ( 7%, $ 100 par noncumulative,  5,000 shares authorized)		$ 300,000
Common Stock ($ 4 stated value,  300,000 shares authorized)		1,000,000
Paid-in Capital in Excess of Par Value—Preferred Stock		15,000
Paid-in Capital in Excess of Stated Value—Common Stock		480,000
Retained Earnings		699,500
Treasury Stock ( 5,000 common shares)		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 $ 8 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 $ 0.70 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 $ 277,400. Paid the dividend declared on December 1.

Instructions

(a) Journalize the transactions. (Include entries to close net income and dividends to Retained Earnings.)

(b) Enter the beginning balances in the accounts and post the journal entries to the stockholders' equity accounts. (Use T-accounts.)

(c) Prepare the stockholders' equity section of the balance sheet at December 31, 2017.

Tot. paid-in capital

$1,825,000

(d) Calculate the payout ratio, earnings per share, and return on common stockholders' equity. (Note: Use the common shares outstanding on January 1 and December 31 to determine the average shares outstanding.)

Answer 1

a)
Feb-01	Cash	30000
	Common stock (5000*4)		20000
	Paid in capital in excess of par-Common stock		10000
Mar-20	Treasury stock-Common stock	8000
	Cash		8000
Oct-01	Cash dividends-Preferred stock (300000*7%)	21000
	Dividends payable		21000
Nov-01	Dividends payable	21000
	Cash		21000
Dec-01	Cash dividends-Common stock (250000-6000)*0.70	170800
	Dividends payable		170800
Dec-31	Cash dividends payable	170800
	Cash		170800
	Income summary	277400
	Retained earnings		277400
	Retained earnings	191800
	Cash dividends-Preferred stock		21000
	Cash dividends-Common stock		170800

PREFERRED STOCK
		1/1 Bal	300000
		12/31 Bal	300000
PAID IN CAPITAL IN EXCESS OF PAR-PREFERRED STOCK
		1/1 Bal	15000
		12/31 Bal	15000
COMMON STOCK
		1/1 Bal	1000000
		2/1	20000
		12/31 Bal	1020000
PAID IN CAPITAL IN EXCESS OF PAR-COMMON STOCK
		1/1 Bal	480000
		2/1	10000
		12/31 Bal	490000
TREASURY STOCK-COMMON STOCK
1/1 Bal	40000
Mar-20	8000
12/31 Bal	48000
RETAINED EARNINGS
Dec-31	21000	1/1 Bal	699500
	170800	12/31	277400
	191800		976900
		12/31 Bal	785100
CASH DIVIDENDS-PREFERRED STOCK
10/1	21000	12/31	21000
		12/31 Bal	0
CASH DIVIDENDS-COMMON STOCK
12/1	170800	12/31	170800
12/31 Bal	0
CASH DIVIDENDS PAYABLE
11/1	21000	10/1	21000
12/31	170800	12/1	170800
	191800		191800
		12/31 Bal	0

c)	Preferred Stock ( 7%, $ 100 par noncumulative,  5,000 shares authorized)		300000
	Common Stock ($ 4 stated value,  300,000 shares authorized, 255000 shares outstanding)		10,20,000
	Paid-in Capital in Excess of Par Value—Preferred Stock		15,000
	Paid-in Capital in Excess of Stated Value—Common Stock		4,90,000
	Total paid in capital		1825000
	Retained Earnings		7,85,100
	Total paid in capital and retained earnings		26,10,100
	Less: Treasury Stock ( 6,000 common shares)		48,000
	Total stockholders' equity		25,62,100
d)	Payout ratio = 170800/(277400-21000) =	66.61%
	EPS = (277400-21000)*2/(250000+5000) =	$              2.01
	ROE = (277400-21000)*2/(1020000+490000-48000+785100+1000000+480000-40000+699500) =	11.69%
	Note:
	Beginning and ending number of shares and Stockholders' equity have been averaged.