Question

The stockholders’ equity accounts of Novak Corp. on January 1, 2017, were as follows. Preferred Stock (6%, $100 par noncumulative, 5,000 shares authorized) $300,000 Common Stock ($4 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 692,000 Treasury Stock (5,000 common shares) 40,000 During 2017, the corporation had the following transactions and events pertaining to its stockholders’ equity. Feb. 1 Issued 5,000 shares of common stock for $30,000. Mar. 20 Purchased 1,000 additional shares of common treasury stock at $9 per share. Oct. 1 Declared a 6% cash dividend on preferred stock, payable November 1. Nov. 1 Paid the dividend declared on October 1. Dec. 1 Declared a $0.45 per share cash dividend to common stockholders of record on December 15, payable December 31, 2017. Dec. 31 Paid the dividend declared on December 1.

(a) Prepare a tabular summary that includes the January 1, 2017, balances. Do not include the beginning balance in Retained Earnings in the tabular summary. (b) Record the 2017 transactions in the tabular summary. (Round answers to 0 decimal places, e.g. 5,275. If a transaction causes a decrease in Assets, Liabilities or Stockholders' Equity, place a negative sign (or parentheses) in front of the amount entered for the particular Asset, Liability or Equity item that was reduced.) Assets = Liabilities + Stockholders’ Equity Paid-in-Capital Retained Earnings Cash = Div. Pay. + Common Stock + PIC in Excess of Stated Value Com. + Pref. Stock + PIC in Excess of Par Value Pref. - Treasury Stock + Revenue - Expense - Dividend (a) Bal. $ $ $ $ $ $ $ $ $ $ (b) Feb. 1 Mar. 20 Oct. 1 Nov. 1 Dec. 1 Dec. 31 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT

Prepare the stockholders’ equity section of the balance sheet at December 31, 2017. Include 2017 net income of $315,000 as an increase to the January 1, 2017, Retained Earnings. NOVAK CORP. Partial Balance Sheet $ $ : $ SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT

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 earning per share to 2 decimal places, e.g. $2.66 and all other answers to 1 decimal place. 17.5%.) Payout ratio % Earnings per share $ Return on common stockholders’ equity

Answer 1

Talbular SOuOmunaury Amount No of shares 300,000 3,000 Preferred Stock Common Stock 250,000 1,000,000 15,000 Excess paid in capital- preferred stock Excess paid in capital 480,000 Common stock Treasury Stock 5,000 [40,000) 1,755,000

Statement of Stockholder' s Equity Additional Retained Соmпоn Preferred Paid-in Earnings Total Апыunt Апоant Shares Shares Capital 495,000 Balance as an January 01,2017 960,000 245,000 3,000 300,000 G89,000 2,444,000 315,000 315,000 Netincome 5,000 Common stock issued 20,000 10,000 30,000 (136,050) (9,000) 2,643,950 (136,050 Dividends declared Treasury stock Balance as on December 31,2017 (1000) 249,000 (5,000) (4,000) 500,000 867,950 976,000 3.000 300,000

1-Feb 5000 shares issued for $35,000 Value in Common Stock 5,000*4) 20,000 Value in Additional Paid in Capital (bal fig 10,000 30,000 20-Mar Purchased 1000 shares at $ 9per share Value of common stock to be reduced (1,000*4) 4,000 5,000 Value in Additional Paid in Capital to be reduced 9,000 1-0ct Declaation of 8% csh dividend to preference shareholders Dividend amount 24,000.00 (300000*8%) 1-Dec Deciaration of cash dividend aommon stockholders No ofshares outstanding 250,000 Орening Treasury stock 5,000) 5,000 Additiona isSued Additional Treasury stock bought back No of shares outstanding (1000) 249,000 Dividend pershare 0.45 Dividend aтount 112,050

Calculation of payout ratiо, eamings per shareand retun on SE Earning per share Average number ofshares outstanding Opening ShareClosing Shares 247,000 + 2 245,000 Where opening shares Closing shares 249,000 ъ 291,000 315,0aa-24,000) Total earnings forequity shareholders Earnings pershare (b/a 118 Payout Ratio Dividend per share 0.45 Earnings pershare 1.18 38% Payout ratio Return on stockholder's equity Income earned forstockholders during the year 315,000 2,444,000 Openingstockholder's equity Return on SE 13%