Stas Corporation was chartered in the state of California. The company was authorized to issue 5,000 shares

Question:

Stas Corporation was chartered in the state of California. The company was authorized to issue 5,000 shares of $100 par value, 6 percent preferred stock and 25,000 shares of no-par common stock. The common stock has a $2 stated value. The stock-related transactions for the quarter ended October 31, 2011, were as follows:

Aug. 3 Issued 5,000 shares of common stock at $22 per share.

15 Issued 4,000 shares of common stock for land. Asking price for the land was $50,000. Common stock’s market value was $12 per share.

22 Issued 2,500 shares of preferred stock for $250,000.

Oct. 4 Issued 2,500 shares of common stock for $30,000.

10 Purchased 1,250 shares of common stock for the treasury for $3,250.

15 Declared a quarterly cash dividend on the outstanding preferred stock and $0.10 per share on common stock outstanding, payable on October 31 to stockholders of record on October 25.

25 Date of record for cash dividends.

31 Paid cash dividends.

REQUIRED

1. Record transactions for the quarter ended October 31, 2011, in T accounts.

2. Prepare the stockholders’ equity section of the balance sheet as of October 31, 2011. Net income for the quarter was $11,500.

3. Calculate quarterly performance: dividends yield, price/earnings ratio, and return on equity. Assume earnings per common share are $1.97 and market price per common share is $25. For beginning stockholders’ equity, use the balance after the August transactions.

4. Discuss the results in 3, including the effect on investors’ returns and the firm’s profitability as it relates to stockholders’ equity.

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