The stockholders equity accounts of Sigma Corporation on January 1, 2010, were as follows. Preferred Stock (8%,

Question:

The stockholders’ equity accounts of Sigma Corporation on January 1, 2010, were as follows.

Preferred Stock (8%, $100 par noncumulative, 5,000 shares authorized) .....$ 300,000

Common Stock ($5 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—Common (5,000 shares) ...................40,000

During 2010 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 an 8% 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, 2010.

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.)

(d) Calculate the payout ratio, earnings per share, and return on common stockholders’ equity ratio. (Note: Use the common shares outstanding on January 1 and December 31 to determine the average shares outstanding.)

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