Question

The following information pertains to Parsons Co.:

Preferred stock, cumulative:

Par value per share $100

Dividend rate 8%

Shares outstanding 10,000

Dividends in arrears none

Common stock:

Par value per share $10

Shares issued 125,000

Dividends paid per share $2.10

Market price per share $47.50

Additional paid-in capital $510,000

Unappropriated retained earnings (after closing) $270,000

Retained earnings appropriated for contingencies $310,000

Common treasury stock:

Number of shares 10,000

Total cost $240,000

Net income $616,000

.

Compute (assume no changes in balances during the past year): (Round per share and ratios to 2 decimal places, e.g. $15.25 or 15.25%.)

.

a)Total amount of stockholders' equity in the balance sheet	$3,100,000	correct
b)Earnings per share of common stock	$4.66 per share	correct
c)Book value per share of common stock	$16.09 per share	wrong
d)Payout ratio of common stock	45.06%	correct
e)Return on common stock equity	28.97%	wrong

I can't figure out why they are wrong. The rounding maybe.

Answer 1

(a)total amount of stockholders equity =

(No of shares*par value)+(shares issued*par value)+additional paid in capital+unappropriated retained earnings+appropriate retained earnings- total cost

=(10,000*100$)+(1,25,000*10$)+5,10,000+2,70,000+3,10,000 -2,40,000

=$31,00,000

(b)earnings per share=

Net income-(no.of shares*100*dividend rate)÷(shares issued-no of shares)

=616,000-(10,000*100*8%)÷(1,25,000-10,000)

=(616,000-80,000)÷1,15,000

=4.66$ per share

(c)book value per share=

(Total amount of stockholders equity- no. Of shares*100)÷(shares issued -no. Of shares)

=(31,00,000-10,000*100)÷(1,25,000-10,000)

=21,00,000÷1,15,000

=18.26$ per share

(d)payout ratio=

dividend paid per share*100÷ earnings per share

(2.10*100)÷4.66

45.06%

(e)Return on common stock equity=

(net income- dividend) ÷(total amount of stockholders equity- no of shares *100)

=(6,16,000-80,000)*100÷ (31,00,000-10,00,000)

=(5,36,000*100)÷21,00,000

=25.52%