Part 1

Pharoah Company is considering these two alternatives for financing the purchase of a fleet of airplanes.

1.		Issue 53,500 shares of common stock at $48 per share. (Cash dividends have not been paid nor is the payment of any contemplated.)
2.		Issue 12%, 10-year bonds at face value for $2,568,000.

It is estimated that the company will earn $806,000 before interest and taxes as a result of this purchase. The company has an estimated tax rate of 40% and has 93,000 shares of common stock outstanding prior to the new financing. Determine the effect on net income and earnings per share for issuing stock and issuing bonds. Assume the new shares or new bonds will be outstanding for the entire year. (Round earnings per share to 2 decimal places, e.g. $2.66.)

Part 2

On January 1, 2017, Blue Spruce Corp. had $1,420,000 of common stock outstanding that was issued at par and retained earnings of $719,000. The company issued 22,000 shares of common stock at par on July 1 and earned net income of $495,000 for the year. Journalize the declaration of a 17% stock dividend on December 10, 2017, for the following two independent assumptions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(a)		Par value is $10 and market price is $17.
(b)		Par value is $5 and market price is $8.

Part 3

On January 1, 2017, Pina Colada Corp. had these stockholders equity accounts.

Common Stock ($10 par value, 66,000 shares issued and outstanding)		$660,000
Paid-in Capital in Excess of Par Value		512,500
Retained Earnings		615,000

During the year, the following transactions occurred.

Jan.	15		Declared a $0.40 cash dividend per share to stockholders of record on January 31, payable February 15.
Feb.	15		Paid the dividend declared in January.
Apr.	15		Declared a 10% stock dividend to stockholders of record on April 30, distributable May 15. On April 15, the market price of the stock was $15 per share.
May	15		Issued the shares for the stock dividend.
Dec.	1		Declared a $0.50 per share cash dividend to stockholders of record on December 15, payable January 10, 2018.
Dec.	31		Determined that net income for the year was $449,000.

3-A) Journalize the transactions. (Include entries to close net income and dividends to Retained Earnings.) (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

3-B) Enter the beginning balances and post the entries to the stockholders equity T-accounts. (Post entries in the order of journal entries posted in the previous part. For accounts that have zero ending balance, the entry should be the balance date and zero for the amount.)

3-C) Prepare the stockholders equity section of the balance sheet at December 31.

3-D) Calculate the payout ratio and return on common stockholders equity. (Round answers to 1 decimal place, e.g. 12.5%.)

Payout ratio			%
Return on common stockholders equity			%