On January 1, 2011, Classic Clothing Corporation’s shareholders’ equity account balances were as follows:

Preferred stock (5%, $80 par noncumulative, 35,000 shares authorized) .....$ 800,000

Common stock ($1 par value, 750,000 shares authorized) ......... 500,000

Additional paid-in capital, preferred stock ............... 30,000

Additional paid-in capital, common stock ................2,000,000

Retained earnings ..........................1,650,000

Treasury stock—common (10,000 shares, at cost) ............ 60,000

During 2011, Classic Clothing Corporation engaged in the following transactions:

January 1 Issued 10,000 shares of common stock for $6 per share

April 1Purchased 10,000 additional shares of common treasury stock at $8 per share

June 1Declared the annual cash dividend on preferred stock, payable June 30

December 1 Declared a $0.55 per share cash dividend to common stockholders payable December 31, 2011 Net income for the year was $940,000.

Requirements

1. Show each of the transactions in the accounting equation.

2. Prepare the shareholders’ equity section of the balance sheet at December 31, 2011.

3. Calculate return on common stockholders’ equity for the year ended December 31, 2011.