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Reporting and Analyzing Stockholders' Equity

Problem Set P11-2A
The stockholders' equity accounts of Alpha Corporation on January 1, 2007, were as follows.

Preferred Stock (8%, $100 par noncumulative, 5,000 shares authorized) $400,000
Common Stock ($5 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 $688,000
Treasury Stock - Common (5,000 shares) $40,000

During 2007 the corporation had the following transactions and event pertaining to its stockholders' equity

Feb. 1 Issued 3,000 shares of common stock for $18,600
Mar. 20 Purchased 1,000 additional shares of common treasury stock at $7 per share.
Oct. 1 Declared an 8% 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, 2007.
Dec. 31 Determined that net income for the year was $280,000. Paid the dividend declared on December 1.

(a) Journalize the transactions. (Include entries to close net income 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, 2007.
(d) Calculate the payout ratio, earnings per share, and return on common stockholders' equity ratio. (Note: Use the common shares outstanding on January 1 and December 31 to determine the average shares outstanding.)

Solution Summary

The solution explains the journal entries, how to prepare the stockholders equity section and calculate some ratios.