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

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

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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