Question

Calculate the payout ratio, earnings per share, and return on common stockholders’ equity. (Round earning per share to 2 decimal places, e.g. $2.66 and all other answers to 1 decimal place. 17.5%.)

Your answer is partially correct. Try again. Calculate the payout ratio, earnings per share, and return on common stockholders' equity. (Round earning per share to 2 decimal places, e.g. $2.66 and all other answers to 1 decimal place. 17.5%.) Payout ratio 69.9 % Earnings per share X Return on common stockholders' equity % Click if you would like to Show Work for this question: Open Show Work SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT VIDEO: SIMILAR PROBLEM

The stockholders’ equity accounts of Monty Corp. on January 1, 2017, were as follows.

Preferred Stock (6%, $100 par noncumulative, 4,900 shares authorized)		$294,000
Common Stock ($3 stated value, 335,000 shares authorized)		837,500
Paid-in Capital in Excess of Par Value—Preferred Stock		14,700
Paid-in Capital in Excess of Stated Value—Common Stock		536,000
Retained Earnings		695,000
Treasury Stock (4,900 common shares)		39,200

During 2017, the corporation had the following transactions and events pertaining to its stockholders’ equity.

Feb.	1		Issued 5,310 shares of common stock for $37,170.
Mar.	20		Purchased 1,300 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 $0.70 per share cash dividend to common stockholders of record on December 15, payable December 31, 2017.
Dec.	31		Determined that net income for the year was $278,600. Paid the dividend declared on December 1.

Answer 1

Payout Ratio	69.9%
Earning Per Share	$0.94
Return on Common Stockholder Equity	12.6%

Explanations:-

Payout Ratio = Dividend Declared/Net Income

Dividend Declared = $0.70 * Shares outstanding

Shares outstanding:-

Opening ($837500/$3)	279167
Issued on Feb 1	5310
Treasury	(4900)
Purchased Treasury on March 20	(1300)
Shares outstanding	278277

Dividend Declared = 278277 * $0.70 = $194793.90

Net Income = $278600

Payout Ratio = $194793.90/$278600 = 69.9%     

Earning Per Share:-

(Net Income – Preference Dividend)/Avg Common Stock shares

Net Income = $278600

Preference Dividend = $294000 * 6% = $17640

Avg Common Stock shares = (Beginning Shares outstanding + Ending Shares outstanding)/2

Beginning Shares outstanding = 279167 – 4900 = 274267

Ending Shares outstanding = 278277

Average = (274267 + 278277)/2 = 276272

EPS = ($278600 - $17640)/276272 = $0.94

Return on Common Stockholder Equity :-

(Net Income – Preference Dividend)/Avg Common Stockholder Equity

Avg Common Stockholder Equity = (Beginning Stockholder Equity + Ending Stockholder Equity)/2

Beginning Stockholder Equity :-

Beginning common stock	$837500
Beginning Paid-in Capital in Excess of Stated Value on Common Stock	$536000
Beginning Retained Earnings	$695000
Treasury Stock	($39200)
Beginning Stockholder Equity	$2029300

Ending Stockholder Equity :-

Ending common stock ($837500 + [5310*$3])	$853430
Ending Paid-in Capital in Excess of Stated Value on Common Stock ($536000 + [5310 * $4])	$557240
Ending Retained Earnings	$761166.10*
Treasury Stock ($39200 + [1300 * $9])	($50900)
Beginning Stockholder Equity	$2120936.10

* Ending Retained Earnings = Beginning Retained Earnings + Net Income – Dividend on common & Preferred stock

   = $695000 + $278600 – ($194793.90 + $17640)

= $761166.10

Avg Common Stockholder Equity = ($2029300 + $2120936.10)/2 = $2075118.05

Return on Common Stockholder Equity = ($278600 - $17640)/$2075118.05

   = 12.6%