Learning Materials
Features
Discover
Chapter 13: 7RQ (page 707)
What are the two basic sources of stockholders’ equity? Describe each source.
The two primary sources of stockholders' equity are retained earnings and paid-in capital.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Computing earnings per share and price/earnings ratio
Rocket Corp. earned net income of \(153,040 and paid the minimum dividend to preferred stockholders for 2018. Assume that there are no changes in common shares outstanding during 2018. Rocket’s books include the following figures:
Preferred Stock—6%, \)60 par value; 2,000 shares authorized, 1,000
shares issued and outstanding \( 60,000
Common Stock—\)5 par value; 80,000 shares authorized, 48,000 shares
issued, 46,700 shares outstanding 240,000
Paid-In Capital in Excess of Par—Common 470,000
Treasury Stock—Common; 1,300 shares at cost (26,000)
Requirements
2. Assume Rocket’s market price of a share of common stock is $12 per share. Compute Rocket’s price/earnings ratio.
Preparing an income statement
The following information was taken from the records of Arizona Motorsports, Inc. at November 30, 2018:
Learning Objectives 3, 4
1. Nov. 8 Treasury Stock \(36,000
Learning Objective 5
Net Income \)37,840
Selling Expenses
Administrative Expenses
Income from Discontinued Operations
Cost of Goods Sold
Treasury Stock—Common (1,500 shares)
Net Sales Revenue
\( 95,000
150,000
2,400
470,000
19,500
801,400
Common Stock, \)11 Par Value, 13,500
shares authorized and issued \( 148,500
Preferred Stock, \)2 No-Par Value, 2,000
shares issued 60,000
Income Tax Expense: Continuing
Operations 50,000
Income Tax Expense: Income from
Discontinued Operations 960
Prepare a multi-step income statement for Arizona Motorsports for the fiscal year ended November 30, 2018. Include earnings per share
How does cumulative preferred stock differ from non-cumulative preferred stock?
Computing earnings per share, price/earnings ratio, and rate of return on common stockholders’ equity
Bianchi Company reported these figures for 2018 and 2017:
2018 2017
Income Statement—partial:
Net Income \( 34,380 \) 18,000
Dec. 31, 2018 Dec. 31, 2017
Balance Sheet—partial:
Total Assets \( 285,000 \) 280,000
Paid-In Capital:
Preferred Stock—11%, \(9 Par Value; 60,000 shares
authorized, 12,000 shares issued and outstanding
\) 108,000 \( 108,000
Common Stock—\)2 Par Value; 60,000 shares
authorized, 50,000 shares issued and outstanding
100,000 100,000
Paid-In Capital in Excess of Par—Common 14,000 14,000
Retained Earnings 60,500 38,000
Total Stockholders’ Equity \( 282,500 \) 260,000
Requirements
1. Compute Bianchi Company’s earnings per share for 2018. Assume the company paid the minimum preferred dividend during 2018. Round to the nearest cent.
What does the rate of return on common stock show, and how is it calculated?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Exams 
GCSE 
IGCSE 
AS 
A Level 
International A Level 
University Admissions Tests 
Flashcards 
Vaia AI 
Notes 
Study Plans 
Study Sets 
Find a job 
Find a degree 
Student Deals 
Magazine 
Mobile App