Caston Company Had Net Income of $5,000,000 for the Year $31,2 \times 10$

question 8

Essay

Caston Company had net income of $5,000,000 for the year ended December 31,2X10.The stockholders' equity section of the Caston Company at December 31,2X10 and 20X9,is as follows:
Caston Company
Stockholders' Equity Section of the Balance Sheet December $31,2 \times 10$ and $20 \times 9$ $12/31/ 2\times 10$$\quad$$\quad$$12/31/2 \times 09$ 11% Preferred stock,$100 par,
$\text { noncuimulative, } 75,000 \text { shares authorized; }$

$\text {20,000 sharesissued and outstanding}$ $\quad$$\quad$$\quad$$\quad$$\quad$$\$ 2,000,000$$\quad$$\quad$$\quad$$\quad$$\$ 2,000,000$ Common stock,$1.25 par,4,000,000 shares
$\begin{array}{lcll}\text { authorized; } 1,100,000 \text { and } 1,050,000 \text { shares }\\\quad \text { issued } & 1,375,000 & 1,312,500 \\\text { Additional paid-in capital-preferred } & 100,000 & 100,000 \\\text { Additional paid-in capital-common } & 15,200,000 & 14,437,500\\\text { Total paid-in capital } & \$ 18,675,000 & \$ 17,850,000 \\\text { Retained earnings } & 17,900,000& 14,600,000\\\text { Total paid-in capital and retained earnings }&\$ 36,575,000&\$ 32,450,000\end{array}$ Treasury stock,12,000 and 10,000
$\begin{array}{ccc}\text { shares of common stock } & (180,000)& (150,000)\\\text { Total stockholders' equity } & \$ 36,395,000&\$ 32,300,000\end{array}$ Determine
a.the book value per share of common stock at the end of 2X10.
b.the rate of return on common equity for 2X10.
c.the amount of cash dividends on common stock declared during 2X10.

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Definitions:

Note Duration

The length of time until a note payable or receivable is due to be paid or received.

Promissory Note

A monetary tool that involves a formal commitment from one entity to give a specific amount of cash to another, either when asked or at an agreed-upon date in the future.

Face Value

The nominal or original value of a security or financial instrument as stated by its issuer, often the amount to be repaid at maturity.

Realizable Value

The estimated amount that an entity can receive from the disposal of an asset, after deducting the costs associated with the disposal.