11) Team Shirts had net income of $23,000. The balance sheet showed beginning and ending
balances in shareholders’ equity of $100,000 and $110,000, respectively. There were no
preferred shares and 20,000 common shares outstanding. Calculate the return on equity.
A) 21.9%
B) 1.15%
C) 5.25%
D) 4.56%
12) Romax Company had net income of $147,000. The balance sheet showed beginning and
ending balances in shareholders’ equity of $750,000 and $790,000, respectively. There were
69,000 common shares outstanding and no preferred stock. Calculate return on equity.
A) 0.47%
B) 2.13%
C) 19.09%
D) 11.16%
13) Team Shirts had net income of $23,000. The balance sheet showed beginning and ending
balances in shareholders’ equity of $100,000 and $110,000, respectively. There were no
preferred shares and 20,000 common shares outstanding throughout the year. Calculate earnings
per share.
A) $0.22
B) $1.15
C) $5.25
D) $4.56
14) Romax Company had net income of $147,000. The balance sheet showed beginning and
ending balance in shareholders’ equity of $750,000 and $790,000, respectively. There were no
preferred shares and 69,000 common shares outstanding throughout the year. Calculate earnings
per share.
A) $0.47
B) $2.13
C) $0.19
D) $11.16
15) Use the following information obtained from the company’s computerized accounting
information system to answer the question below. Note: There were no preferred shares
outstanding and no additional shares were issued in 2011.
2011
2010
Net income
$ 20,000
$ 16,000
Total assets
$ 170,000
$ 150,000
Total liabilities
$ 94,000
$ 90,000
Total shareholders’ equity
$ 76,000
$ 60,000
Shares outstanding
10,000 shares
10,000 shares
Return on equity for 2011, rounded to the nearest tenth of a percent, equals ________.
A) 26.3%
B) 23.5%
C) 12.5%
D) 29.4%
16) Use the following information obtained from the company’s computerized accounting
information system to answer the question(s) below. Note: There were no preferred shares
outstanding and no additional shares were issued in 2011.
2011
2010
Net income
$ 20,000
$ 16,000
Total assets
$ 170,000
$ 150,000
Total liabilities
$ 94,000
$ 90,000
Total shareholders’ equity
$ 76,000
$ 60,000
Shares outstanding
10,000 shares
10,000 shares
Earnings per share for 2011 equals ________.
A) $20,000
B) $0.26 per share
C) $2.00 per share
D) $1.00 per share
17) Which of the following is the best measure of a company’s use of owners’ investments?
A) asset turnover
B) current assets
C) return on assets
D) return on equity
18) Argonaut Enterprises had 500,000 shares of common stock outstanding on January 1. On
June 1, Argonaut issued an additional 60,000 common shares. Argonaut has no treasury stock.
The weighted average number of common shares outstanding for the year was ________.
A) 500,000
B) 560,000
C) 530,000
D) 535,000
19) Argonaut Enterprises had 500,000 shares of common stock outstanding on January 1. On
June 1, Argonaut issued an additional 60,000 common shares. Argonaut has no treasury stock. If
Argonaut’s net income was $133,750 for the year, its earnings per share for the year was
________, rounded to the nearest cent.
A) $0.27
B) $0.24
C) $3.96
D) $0.25
20) Albatross Shipping had 100,000 shares of common stock outstanding on January 1. On
September 1, Albatross issued an additional 30,000 common shares. Albatross has no treasury
stock. The weighted average number of common shares outstanding for the year was ________.
A) 100,000
B) 130,000
C) 115,000
D) 110,000
21) Albatross Shipping had 100,000 shares of common stock outstanding on January 1. On
September 1, Albatross issued an additional 30,000 common shares. Albatross has no treasury
stock. If its net income was $12,650 for the year, its earnings per share for the year was
________, rounded to the nearest cent.
A) $0.13
B) $0.10
C) $0.11
D) $0.12
22) Which of the following will increase a company’s earnings per share for the year?
A) issuing additional shares of stock during the year
B) buying additional shares of treasury stock during the year
C) issuing a stock dividend to shareholders
D) selling all the stock it held as treasury stock at the beginning of the year
23) Return on equity is a measure of how well a company produces income with the amount of
investment the common shareholders have made in the company.
24) Return on equity is calculated by dividing total shareholders’ equity by the total amount of
income earned for an accounting period.
25) Diluted earnings per share is calculated as if all outstanding securities that could be
converted into common stock actually were converted.
26) When a company issues additional shares of stock during the year, its earnings per share will
most likely decrease.
27) When a company issues additional shares of stock during the year, its earnings per share will
most likely increase.
28) When a company buys additional shares of treasury stock during a year when it does not
issue any additional shares of common stock, its earnings per share will most likely increase.
29) When a company sells all of its existing shares of treasury stock during the year, its earnings
per share will most likely increase.
30) Describe ratios used to analyze shareholders’ equity.
31) Kim Brother Fitness Center had average common shareholders’ equity of $546,890. The
company had net income during the year of $359,000. There were 378,000 shares of common
stock outstanding throughout the year and no preferred stock at any time. Calculate return on
equity (round to the nearest tenth of a percent).
32) Kim Brother Fitness Center had common shareholders’ equity of $546,890. The company
had net income during the year of $359,000. There were 378,000 shares of common stock
outstanding throughout the year and no preferred stock at any time. Calculate earnings per share
(rounded to the nearest cent).
33) Ice Video Corporation had average common shareholders’ equity of $423,785. The company
had net income during the year of $213,465. There were 258,000 shares of common stock
outstanding throughout the year and no preferred stock at any time. Calculate earnings per share
(round to the nearest cent).
34) Ice Video Corporation had an average common shareholders’ equity of $423,785. The
company had net income during the year of $213,465. There were 258,000 shares of common
stock outstanding throughout the year and no preferred stock at any time. Calculate return on
equity (round to the nearest tenth of a percent).
35) Marquise Corporation had a return on equity of 18%. The company had net income during
the year of $147,000. There were 98,000 shares of common stock outstanding throughout the
year and no preferred stock at any time. Calculate average common shareholders’ equity (round
to the nearest cent).
36) Lance Corporation had a return on equity of 20%. The company earned net income of
$2,500,000 during the year. There were 200,000 shares of common stock outstanding throughout
the year and no preferred stock at any time. Calculate average common shareholders’ equity.
37) Ace Electronics has the following information available at the end of the year:
Dec. 31, this
year
Dec. 31, last
year
Preferred stock, 6%, $100 par, noncumulative
$100,000
$ 100,000
Common stock, $1 par *
20,000
10,000
Additional paid-in capital, common stock
150,000
50,000
Retained earnings
95,000
65,000
Treasury stock (1,000 shares at cost)
(5,000)
(5,000)
Total shareholders equity
$360,000
$220,000
* Additional shares of common stock were issued on July 1 of this year.
Net income was $90,000 this year.
1. What is the total dividend declared by Ace’s board of directors this year?
2. What is the total amount of the dividends declared that belongs to the preferred shareholders?
3. What is the weighted average number of common shares outstanding this year?
4. What is earnings per share this year?
5. What is return on equity this year, rounded to the nearest tenth of a percent?
38) Marquise Corporation had average common shareholders’ equity of $816,667. The company
has no preferred stock. Net income for the year was $147,000. Earnings per share was $1.50.
Calculate the weighted average number of common shares outstanding during the year.
39) Select the column(s) of the financial statement(s) where each item is most easily found by
putting an X in the appropriate column. SOME ITEMS MAY BE FOUND ON MORE THAN
ONE STATEMENT.
Description:
Income
Statement
Statement of
Changes in
Shareholders’
Equity
Statement of
Cash Flows
Balance
Sheet
Dividends declared
Dividends paid
Dividends payable
Common stock issued during
the year
Proceeds from issuing stock
during the year
Treasury stock repurchased
during the year
Cash paid for the purchase of
treasury stock during the year
Net income
Earnings per share
par value of common stock
Statement of
Balance
Sheet
40) Team Instructions: Divide the class into teams of three or four people. Each team member
should work the following problem separately outside of class. Then give the students time in
class to compare answers with their teammates and put together a final correct copy of the
problem. Each team should turn in only one copy of the problem for grading, along with a copy
of the annual report that it used. All team members will receive the same grade.
Provide students with copies of real merchandising companies’ annual reports, or give students
the Web addresses of real merchandising companies and ask them to print out the annual
reports. All team members should work with the same company’s annual report.
Answer the following questions using the annual report assigned to your team:
1.
Does the company have any preferred stock?
2.
What is the par value of the company’s common stock?
3.
What is the total amount received from issuing common stock?
4.
What is the total number of common shares issued by the company?
5.
What is the average price at which a share of common stock was issued?
6.
Have there been any new shares issued in the most recent year?
7.
What is the total amount received from issuing common stock during the
most recent year?
8.
What is the average price of the common stock issued during the most
recent year?
9.
Does the company have any treasury stock?
10.
Did the company purchase any treasury stock during the most recent
year?
11.
Which financial statement shows whether any dividends were declared
during the year?
12.
What is the amount, if any of dividends declared during the year?
13.
Which financial statements shows the amount of dividends paid during
the year?
14.
What is the amount, if any, of dividends paid during the year?
15.
What is the net income for the most recent year?
16.
What is the company’s earnings per share for the most recent year?
17.
Calculate the company’s return on equity for the most recent year.
18.
Show the change in retained earnings during the most recent year by
filling in the missing information below:
Beginning retained earnings $___________
Plus _______________
Minus _____________
Ending retained earnings $_____________
41) Team Instructions: Divide the class into teams of three or four people. Each team member
should work the following problem separately outside of class. Then give the students time in
class to compare answers with their teammates and put together a final correct copy of the
problem. All team members will receive the same grade.
Use the July and August transactions and financial statements for Team Shirts in your textbook
to answer these questions:
1.
Calculate the current ratio at August 31.
2.
What effect does issuing additional shares of stock for cash
have on a company’s current ratio?
3.
What effect does purchasing treasury stock for cash have on
a company’s current ratio?
4.
Calculate return on assets for August.
5.
What effect does selling additional shares of stock for cash
have on a company’s return on assets?
6.
What effect does buying treasury stock for cash have on a
company’s return on assets?
7.
Calculate the debt-to-equity ratio for August.
8.
Calculate the debt-to-equity ratio for July.
9.
Did the debt-to-equity ratio increase or decrease?
10.
What business event explains the change in the debt-to-equity ratio?
11.
What is the par value of a share of Team Shirts’ stock?
12.
What is the average market price that all investors, including
Sara, paid for a share of Team Shirts’ stock?
13.
Calculate earnings per share for the month of August.
14.
Calculate return on equity for August.
15.
Calculate return on equity for July.
16.
Did return on equity improve in August?
17.
What business event explains the change in return on equity?
Answer: