Question

The stockholders’ equity accounts of Blue Spruce Corp. on January 1, 2022, were as follows.

Preferred Stock (7%, $100 par noncumulative, 13,000 shares authorized). 780,000

Common Stock ($4 stated value, 780,000 shares authorized). 2,600,000

Paid-in Capital in Excess of Par Value—Preferred Stock. 39,000

Paid-in Capital in Excess of Stated Value—Common Stock. 1,248,000

Retained Earnings. 1,788,800

Treasury Stock (13,000 common shares). 104,000

During 2022, the corporation had the following transactions and events pertaining to its stockholders’ equity.

Feb.	1		Issued 13,000 shares of common stock for $78,000.
Mar.	20		Purchased 2,600 additional shares of common treasury stock at $7 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 $0.50 per share cash dividend to common stockholders of record on December 15, payable December 31, 2022.
Dec.	31		Determined that net income for the year was $728,000. Paid the dividend declared on December 1.

1, Journalize the transactions. (Include entries to close net income and dividends to Retained Earnings.) (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

2.Enter the beginning balances in the accounts and post the journal entries to the stockholders’ equity accounts. (Post entries in the order of journal entries posted in the previous part. For accounts that have zero ending balance, the entry should be the balance date and zero for the amount.)

3.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.) (Round answers to 2 decimal places, e.g. 15.25.)

Payout ratio:

Earnings Per Share:

Return on common stockholders equity

Answer 1

Credit Calculation Blue Spruce Corp. Date Account 1-Feb Cash Common Stock Paid-in Capital in Excess of Stated Value-Common Stock Debit 78,000 =13,000*4 52,000 26,000 18,200 =2,600*7 20-Mar Treasury Stock Cash 18,200 54,600 =780,000*7% 1-Oct Cash Dividends Dividends Payable 54,600 54,600 1-Nov Dividends Payable Cash 54,600 323,700 Wkgs below 1-Dec Cash Dividends Dividends Payable 323,700 728,000 31-Dec Income Summary Retained Earnings 728,000 378,300 31-Dec Retained Earnings Cash Dividends 378,300 '=54600 + 323700 323,700 31-Dec Dividends Payable Cash 323,700 =2,600,000/4 Workings Common Dividend Opening Shares 650,000 Shares Issued 13,000 Number of Common Shares Issued 663,000 Treasury Stock - opening balance (13,000) Treasury Stock purchased (2,600) Number of Common Shares 0/s 647,400 Common Dividend per share 0.50 Common Dividend Declared 323,700 Dividend is paid on 0/s common shares excluding treasury shares =647,400*0.50 Note

Blue Spruce Corp. T Accounts Date Debit Date Preferred Stock Op bal Credit Date Debit Date Credit Common Stock Op bal $2,600,000 1-Feb $ 52,000 $ 780,000 Bal. $ 780,000 Paid in Capital in Excess of Par Value-PS Op bal $ 39,000 Bal. $ 2,652,000 Paid in Capital in Excess of Stated Value-CS Op bal $1,248,000 1-Feb $ 26,000 Bal. $ 39,000 Retained Earnings Op bal $1,788,800 31-Dec $ 378,300 31-Dec $ 728,000 Bal. $1,274,000 Cash Dividends 1-Oct $ 54,600 -Dec $323,700 31-Dec $ 378,300 1 $2,138,500 Bal. Bal. Treasury Stock 104,000 18,200 Op bal $ 20-Mar $ Bal. $ 122,200

780,000 2,652,000 3,432,000 Blue Spruce Corp. Partial Balance Sheet As of December 31, 2022 Stockholders Equity Paid in capital Capital Stock Preferred Stock Common Stock Total Capital Stock Additional Paid in capital Paid in Capital in Excess of Par Value-Preferred Stock Paid in Capital in Excess of Stated Value-Common Stock Total Additional Paid in Capital Total Paid in Capital Retained Earnings Total Paid in Capital and Retained Earnings Less: Treasury Stock Total Stockholders Equity 39,000 1,274,000 1,313,000 4,745,000 2,138,500 6,883,500 (122,200) 6,761,300

Ratios Payout Ratio Dividends paid / Net Income =378,300/728,000 51.96% Payout Ratio Earnings per share Net Income-Preferred Dividends / Average No. of Common Shares Outstanding = (728,000-54,600)/((637,000+647,400)/2) $ 1.05 Earnings per share Return on common stockholders equity Net Income-Preferred Dividends / Average Common Stockholders Equity =(728,000-54,600)/((5,532,800+5,942,300)/2) 11.74% Return on common stockholders equity 1-Jan 650,000 Workings Average No. of Common Shares Outstanding Opening Shares Shares Issued Number of Common Shares Issued Treasury Stock - opening balance Treasury Stock purchased Number of Common Shares 0/s 650,000 (13,000) 31-Dec 650,000 13,000 663,000 (13,000) (2,600) 647,400 637,000 Common stockholders equity Common Stock Paid in Capital in Excess of Stated Value-Common Stock Retained Earnings Less: Treasury Stock Total Stockholders Equity 1-Jan 2,600,000 1,248,000 1,788,800 (104,000) 5,532,800 31-Dec 2,652,000 1,274,000 2,138,500 (122,200) 5,942,300