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Chapter 13: Q7TI (page 699)

Vollmer, Inc. had reported the following balances:

December 31, 2019 December 31, 2018

Net Income \( 80,000 \) 60,000

Preferred Dividends 2,000 5,000

Total Stockholders鈥� Equity 340,000 310,000

Stockholders鈥� Equity attributable to Preferred Stock 20,000 20,000

Number of Common Shares Outstanding 10,000 14,000

11. Compute Vollmer鈥檚 earnings per share for 2019.

12. Compute Vollmer鈥檚 price/earnings ratio for 2019, assuming the market price is $40 per share.

13. Compute Vollmer鈥檚 rate of return on common stockholders鈥� equity for 2019.

Short Answer

Expert verified

Earnings per share for 2018 of the company is $6.5

Price/earnings ratio for 2018 of the company is $6.15

Rate of return on common stockholders鈥� equity for 2018 of the company is

Step by step solution

01

Calculation of earnings per share

Earnings per share

Net Income

$80,000

Less: Preferred dividend

$(2,000)

a

$78,000

b. Weighted average outstanding shares

12,000

Earnings per share (a/b)

$6.5

02

Calculation of price / earnings ratio

Price/earnings ratio for 2018

Price of common stock (a)

$40

Earnings per share (b)

$6.5

Price/earnings ratio (a/b)

$6.15

03

Calculation of rate of return on common stockholders’ equity

Rate of return on common stockholders鈥� equity

Net Income

$80,000

Less: Preferred dividend

$2,000

a

$78,000

b. Weighted average outstanding shares

12,000

Rate of return on common stockholders鈥� equity (a/b) * 100

65%

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Most popular questions from this chapter

Journalizing issuance of stock and preparing the stockholders鈥� equity section of the balance sheet

The charter for ASAP-TV, Inc. authorizes the company to issue 100,000 shares of \(5, no-par preferred stock and 500,000 shares of common stock with \)1 par value. During its start-up phase, ASAP-TV completed the following transactions:

Sep. 6 Issued 550 shares of common stock to the promoters who organized the corporation, receiving cash of \(16,500.

12 Issued 400 shares of preferred stock for cash of \)23,000.

14 Issued 1,500 shares of common stock in exchange for land with a market value of $17,000.

Requirements

1. Record the transactions in the general journal.

What does earnings per share report, and how is it calculated?

What account is used to record the premium when issuing common stock? What type of account is this?

Identifying advantages and disadvantages of a corporation

Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.

f. Entity can raise more money than a partnership or sole proprietorship

A Identifying sources of equity, stock issuance, and dividends

Voyage Comfort Specialists, Inc. reported the following stockholders鈥� equity on its balance sheet at June 30, 2018:

Preferred Stock鈥�7%, ? Par Value; 625,000 shares

authorized, 280,000 shares issued and outstanding

Paid-In Capital:

\( 1,400,000

1,340,000

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Total Paid-In Capital 5,640,000

Retained Earnings 12,000,000

Total Stockholders鈥� Equity \) 17,640,000

Common Stock鈥擻(1 Par Value; 3,000,000 shares

authorized, 1,340,000 shares issued and outstanding

Requirements

4. No preferred dividends are in arrears. Journalize the declaration of a \)500,000 dividend at June 30, 2018, and the payment of the dividend on July 20, 2018. Use separate Dividends Payable accounts for preferred and common stock. An explanation is not required.
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