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Question: The income statement, statement of retained earnings, and balance sheet for Somerville Company are as follows:
Somerville Company Income Statement For the Year Ended December 31, 2014
Amount
Percent
Net sales
$8,281,989
100.0%
Less: Cost of goods sold
(5,383,293)
65.0
Gross margin
$2,898,696
35.0
Less: Operating expenses
(1,323,368)
16.0
Operating income
$1,575,328
19.0
Less: Interest expense
(50,000)
0.6
Net income before taxes
$1,525,328
18.4
Less: Taxes (48%)*
(732,157)
8.8
Net income
$793,171
9.6
* Includes both state and federal taxes.
Somerville Company Statement of Retained Earnings For the Year Ended December 31, 2014
Balance, beginning of period
$1,979,155
Total
$2,772,326
Less: Preferred dividends
(80,000)
Dividends to common stockholders
(201,887)
Balance, end of period
$2,490,439
Somerville Company Comparative Balance Sheets At December 31, 2013 and 2014
2013
2014
Assets
Current assets:
Cash
$2,875,000
$2,580,000
Marketable securities
800,000
700,000
Accounts receivable (net)
939,776
690,000
Inventories
490,000
260,000
Other
93,000
74,261
Total current assets
$5,197,776
$4,304,261
Property and equipment:
Land
$1,575,000
$1,067,315
Building and equipment (net)
1,348,800
1,150,000
Total long-term assets
$2,923,800
$2,217,315
Total assets
$8,121,576
$6,521,576
Liabilities and stockholders' equity
Current liabilities:
Notes payable, short term
$1,170,127
$ 543,641
Accounts payable
420,510
101,500
Current maturity of long-term debt
3,000
2,000
Accrued payables
200,000
57,780
Total current liabilities
$1,793,637
$ 704,921
Long-term liabilities:
Bonds payable, 10%
500,000
Total liabilities
$2,293,637
$1,204,921
Stockholders' equity:
Preferred stock, $25 par, 8%
$1,000,000
Common stock, $1.50 par
337,500
Additional paid-in capital*
2,000,000
Retained earnings
2,490,439
1,979,155
Total equity
$5,827,939
$5,316,655
Total liabilities and stockholders' equity
* For common stock only.
Computing the Dividend Yield and the Dividend Payout Ratio Refer to the information for Somerville Company on the previous page. Also, assume that the market price per common share is $8.10. Required:
1. Compute the dividends per share.
2. Compute the dividend yield.
3. Compute the dividend payout ratio.
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