Reference no: EM13914179
Gorlin Corporation was chartered in the Commonwealth of Massachusetts. The company was authorized to issue 20,000 shares of $100 par value, 6 percent pre- ferred stock and 100,000 shares of no-par common stock. The common stock has a $2 stated value. The stock-related transactions for the quarter ended October 31, 2014, follow.
Aug. 3 Issued 20,000 shares of common stock at $22 per share.
15 Issued 16,000 shares of common stock for land. Asking price for the land was $200,000. Common stock's market value was $12 per share. Management wishes to record the land at the market value of the stock.
22 Issued 10,000 shares of preferred stock for $1,000,000. Oct. 4 Issued 10,000 shares of common stock for $120,000.
10 Purchased 5,000 shares of common stock for the treasury for $13,000.
15 Declared a quarterly cash dividend on the outstanding preferred stock and $0.10 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 the cash dividends declared on October 15.
Required:
1. Record transactions for the quarter ended October 31, 2014, using T accounts.
2. Prepare the stockholders' equity section of Gorlin's balance sheet as of October 31, 2014. Net income for the quarter was $46,000.
3. Business application- Calculate dividend yield, price/earnings ratio, and return on equity. (Round the dividend yield and return on equity to the nearest tenth of a percent. Round the price/earnings ratio to the nearest tenth.) 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. Business application- Discuss the results in requirement 3, including the effect on investors' returns and the firm's profitability as it relates to stockholders' equity.
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