The stockholders' equity accounts of Cyrus Corporation on January 1, 2017, were as follows.

Preferred Stock (7%, $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

688,000

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 $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, 2017.

31

Determined that net income for the year was $280,000. Paid the dividend declared on December 1.

Instructions

(a)

Journalize the transactions. (Include entries to close net income and dividends 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, 2017.

Tot. paid-in capital

$1,825,000

(d)

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.)

Cyrus Corporation:

Answers to A & B are enclosed in the attachment.

C) Stockholders' Equity:

Authorized Capital 300,000 at $4 par

Issued Common Stock 255,000 units at $4 par = $1,020,000

7% Preferred Stock 3,000 units at $100 par  = $300,000

APIC - Preferred Stock  = $15,000

APIC - Common Stock = $487,000

Retained Earnings = $825,000

Less Treasury Stock, 11,000 units at $4 par = $44,000

Total = $2,603,000

D) i) Payout Ratio = Dividends/Net Income x 100 = $122,000/$280,000 x 100 = 43.57%

ii) Earnings per share = Net Income/Number of Common Stock outstanding = $280,000/244,000 = $1.15

iii) Return on Common Equity = Net Income/Shareholders' Equity x 100

= $280,000/2,588,000 x 100 = 10.82%

Explanation:

a) Journal entries show which account is to be debited and which is to be credited in accordance with the double entry system of bookkeeping.

b) T-Ledger is the tool that accumulates all the transactions of each account in order to arrive at the closing balance for the period.

c) Treasury Stock was treated using the par value method.  This method recognizes the excess paid to repurchase treasury stocks in the Additional Paid-in Capital account.  The other method is the cost method, which deducts the whole costs in the Common Equity.

d) To calculate the payout ratio, earnings per share, and return on equity, we have only considered common stockholders.  They are the common equity holders.  Preferred stockholders are not equity holders.

e) The payout ratio shows the proportion of net income paid out as dividends.

f) Earnings per share are the net income divided by outstanding common stock.  Outstanding of 244,000 shares remained; i.e. (issued common stock of 255,000 minus treasury stock  of 11,000).  This formed the basis for calculating common stock dividends.