Kras, Inc., was organized and authorized to issue 50,000 shares of $100 par value, 9 per cent preferred stock and 50,000 shares of no-par, $5 stated value common stock on July 1, 2011. Stock-related transactions for Kras are as follows:
1. Record the transactions in journal form.
2. Prepare the stockholders’ equity section of the balance sheet as it would appear on August 31, 2011. Net income for July was zero 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.
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