Kras, Inc., was organized and authorized to issue 5,000 shares of $100 par value, 9 percent preferred

Question:

Kras, Inc., was organized and authorized to issue 5,000 shares of $100 par value, 9 percent preferred stock and 50,000 shares of no-par, $5 stated value common stock on July 1, 2010. Stock-related transactions for Kras are as follows:

July 1 Issued 10,000 shares of common stock at $11 per share.

1 Issued 500 shares of common stock at $11 per share for services rendered in connection with the organization of the company.

2 Issued 1,000 shares of preferred stock at par value for cash.

10 Issued 2,500 shares of common stock for land on which the asking price was $70,000. Market value of the stock was $12. Management wishes to record the land at full market value of the stock.

Aug. 2 Purchased 1,500 shares of its common stock at $13 per share.

10 Declared a cash dividend for one month on the outstanding preferred stock and $.02 per share on common stock outstanding, payable on August 22 to stockholders of record on August 12.

12 Date of record for cash dividends.

22 Paid cash dividends.

Required

1. Record the transactions in journal form.

2. Prepare the stockholders’ equity section of the balance sheet as it would appear on August 31, 2010. The Company’s net income for July and August was $11,500.

3. Calculate dividends yield, price/earnings ratio, and return on equity. Assume earnings per common share are $1.00 and market price per common share is $20. For beginning stockholders’ equity, use the balance after the July transactions.

4. Discuss the results in requirement 3, including the effect on investors’ returns and the company’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... 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... Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...