Reference no: EM132815083

The shareholders' equity of SCAR Corporation on December 31, 2016 appeared as follows:

18% cumulative Preference Shares, par $50, authorized 250,000

shares, issued 150,000 shares $7,500,000

Ordinary Shares, par $100 authorized 100,000 shares, issued 80,000 shares 8,000,000

Share Premium on Common Stock 500,000

Unappropriated Retained Earnings 4,750,000

Appropriation Reserve for Contingencies 725,000

The following transactions took place during 2017:

Jan. 15 Cash dividends of $2,500,000 were declared and paid to both preferred and ordinary shares. Last dividend payment for preferred shares was December 2013.

Feb. 15 5,000 common shares were acquired at $120 per share.

Apr. 11 An appropriation for purchase of machinery was approved by the Board for $200,000.

May 31 1,000 treasury shares were sold for $125,000.

June 1 A 10% stock dividend was declared and issued to the ordinary shareholders. Fair market value of the stock was $120.

July 1 The case filed against the corporation did not prosper. The appropriation for contingencies were reversed.

Dec. 31 The Board decided to retire 2,000 treasury shares.

Net income for the year amounted to $1,750,000.

An appropriation for the remaining treasury shares was set up.

Direction:

Problem a.) Prepare entries to record the above transactions, and

Problem b.) Show the Shareholder's Equity Section as at December 2017.

Additional Referring to No. 1.

Problem c.) Show the computations for the earnings per share, return on equity, and book value per share.

Problem d.) Compare the stock's market value of $120, book value, dividend per share, earnings per share, price earnings ratio and return on equity. Draw a conclusion from this.