Question

The stockholders' equity accounts of Sarasota Corp. on January 1, 2022, were as follows. Preferred Stock (7%, $100 par noncumulative, 3,000 shares authorized) $180,000 Common Stock ($4 stated value, 180,000 shares authorized) 600,000 Paid-in Capital in Excess of Par Value-Preferred Stock 9,000 Paid-in Capital in Excess of Stated Value-Common Stock 288,000 Retained Earnings 412,800 Treasury Stock (3,000 common shares) 24,000 During 2022, the corporation had the following transactions and events pertaining to its stockholders' equity. Feb. 1 Issued 3,000 shares of common stock for $18,000. Mar. 20 / Purchased 600 additional shares of common treasury stock at $7 per share. Oct. Declared a 7% cash dividend on preferred stock, payable November 1. Nov. 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 $168,000. Paid the dividend declared on December 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 O for the amounts. Round answers to 0 decimal places, e.g. 5,275.) 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.) Prepare the stockholders' equity section of the balance sheet at December 31, 2022. 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.)

Answer 1

Prepare journal entries as follows:

Date	Account Titles	Debit	Credit
Feb. 01	Cash	$18,000
	Common stock (3,000 shares × $4)		$12,000
	Paid-in capital in Excess of par value-Common stock (3,000 shares × $2)		$6,000
Mar. 20	Treasury stock (600 shares × $7)	$4,200
	Cash		$4,200
Oct. 01	Cash Dividends ($180,000 × 7%)	$12,600
	Dividends payable		$12,600
Nov. 01	Dividends payable	$12,600
	Cash		$12,600
Dec. 01	Cash Dividends	$74,700
	Dividends payable		$74,700
Dec. 31	Income Summary	$168,000
	Retained earnings		$168,000
Dec. 31	Retained earnings	$87,300
	Cash dividends		$87,300
Dec. 31	Dividends payable	$74,700
	Cash		$74,700

__________________________________________________________________________

Prepare t-accounts as follows:

Preferred stock
		Beg. Bal.	$180,000
		End. Bal.	$180,000
Common stock
		Beg. Bal.	$600,000
		Feb. 01	$12,000
		End. Bal.	$612,000
Paid-in capital in Excess of par value-preffered stock
		Beg. Bal.	$9,000
		End. Bal.	$9,000
Paid-in capital in Excess of par value-common stock
		Beg. Bal.	$288,000
		Feb. 01	$6,000
		End. Bal.	$294,000
Treasury stock
Beg. Bal.	$24,000
Mar. 20	$4,200
End. Bal.	$28,200
Cash Dividends
Oct. 01	$12,600	Dec. 31	$87,300
Dec. 01	$74,700
Retained Earnings
Dec. 31	$87,300	Beg. Bal.	$412,800
		Dec. 31	$168,000
		End. Bal.	$493,500