Chapter 13, Problem 4P

Kraft Unlimited, Inc., was organized and authorized to issue 5,000 shares of $100 par value, 9 percent preferred stock and 50,000 shares of no par, $5 stated value common stock on July 1, 2014. Stock-related transactions for Kraft Unlimited follow.

REQUIRED

1. 1. Prepare journal entries to record these transactions.
2. 2. Prepare the stockholders’ equity section of Kraft’s balance sheet as it would appear on August 31, 2014. Net income for July was zero and August was $11,500.
3. 3. Calculate dividend 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. (Round to the nearest tenth of a percent.)
4. 4. Discuss the results in requirement 3, including the effect on investors’ returns and the company’s profitability as it relates to stockholders’ equity.