Argo Sales Corporation has in recent years maintained the following relationships among the data on its financial statements:
The corporation had a net income of $120,000 for 2011, which resulted in earnings of $5.20 per share of common stock. Additional information includes the following:
Capital stock authorized, issued (all in 2000), and outstanding:
Common, $10 per share par value, issued at 10% premium
Preferred, 6% nonparticipating, $100 per share par value, issued at a 10% premium
Market value per share of common at December 31, 2011: $78
Preferred dividends paid in 2011: $3,000
Times interest earned in 2011: 33
The amounts of the following were the same at December 31, 2011 as at January 1, 2011: inventory, accounts receivable, 5% bonds payable-due 2020, and total stockholders' equity.
All purchases and sales were on account
Required
a. Prepare in good form the condensed balance sheet and income statement for the year ending December 31, 2011, presenting the amounts you would expect to appear on Argo's financial statements (ignoring income taxes). Major captions appearing on Argo's balance sheet are current assets, fixed assets, intangible assets, current liabilities, long-term liabilities, and stockholders' equity. In addition to the accounts divulged in the problem, you should include accounts for prepaid expenses, accrued expenses, and administrative expenses. Supporting computations should be in good form.
b. Compute the following for 2011. (Show your computations.)
1. Rate of return on stockholders' equity
2. Price/earnings ratio for common stock
3. Dividends paid per share of common stock
4. Dividends paid per share of preferred stock
5. Yield on common stock.