Question

The following information pertains to Parsons Co.:       Preferred stock, cumulative:             Par per share          &n

The following information pertains to Parsons Co.:

      Preferred stock, cumulative:

            Par per share                                                                                                      $100

            Dividend rate                                                                                                         8%

            Shares outstanding                                                                                          10,000

            Dividends in arrears                                                                                            none

      Common stock:

            Par per share                                                                                                        $10

            Shares issued                                                                                                120,000

            Dividends paid per share                                                                                   $2.70

            Market price per share                                                                                    $48.00

      Additional paid-in capital                                                                                    $400,000

      Unappropriated retained earnings (after closing)                                              $270,000

      Retained earnings appropriated for contingencies                                            $300,000

      Common treasury stock:

            Number of shares                                                                                            10,000

            Total cost                                                                                                     $250,000

      Net income                                                                                                        $740,000

Instructions

Compute (assume no changes in balances during the past year):

(a)     Total amount of stockholders’ equity in the balance sheet

(b)     Earnings per share of common stock

(c)     Book value per share of common stock

(d)     Payout ratio of common stock

(e)     Return on common stock equity

Business   Accounting   
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Homework Answers

Answer #1

a) Stockholders' equity = (10000*100)+(120000*10)+400000+270000+300000-250000 = 2920000

(b)     Earnings per share of common stock = Total earnings / outstanding common shares

Total earnings = Net income - Preferred stock dividend

=740000-80000/120000-10000= $ 6 per share

(c)     Book value per share of common stock =

(Stockholders' equity-preferred equity) / (common shares outstanding)

=2920000-1000000/120000-10000=17.45 per share

(d)     Payout ratio of common stock = (Dividend per share/ Earnings per share)*100

= (2.70/6)*100=45%

(e)     Return on common stock equity =

(Net income - Preferred dividend) / (Stockholders' equity - preferred equity)

= (740000-80000)/(2920000-1000000)=34.4%

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