Stavski Plastics Corporation was chartered in the state of Massachusetts. The company was authorized to issue 10,000

Question:

Stavski Plastics Corporation was chartered in the state of Massachusetts. The company was authorized to issue 10,000 shares of $100 par value, 6 percent preferred stock and 50,000 shares of no-par common stock. The common stock has a $2 stated value. The stock-related transactions for the quarter ended October 31, 2010, were as follows:

Aug. 3 Issued 10,000 shares of common stock at $22 per share.

15 Issued 8,000 shares of common stock for land. Asking price for the land was $100,000. Common stock’s market value was $12 per share.

22 Issued 5,000 shares of preferred stock for $500,000.

Oct. 4 Issued 5,000 shares of common stock for $60,000.

10 Purchased 2,500 shares of common stock for the treasury for $6,500.

15 Declared a quarterly cash dividend on the outstanding preferred stock and $.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, 2010, in T accounts.

2. Prepare the stockholders’ equity section of the balance sheet as of October 31, 2010. Net income for the quarter was $23,000.

3. Calculate 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 requirement 3, including the effect on investors’ returns and the firm’s profitability as it relates to stockholders’ equity.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...