8-1
PROBLEM 8-22
a. NC = Net Change in Cash
Concord Corp.
Statements Model For 2014
Balance Sheet
Income Statement
Statement of
Event
Assets
=
Stockholders’ Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Pfd. Stk.
+
Com. Stk.
+
PIC in
Exc. PS
+
PIC in
Exc. CS
+
Ret. Earn
1.
450,000
NA
300,000
NA
150,000
NA
NA
NA
NA
450,000 FA
2.
606,000
600,000
NA
6,000
NA
NA
NA
NA
NA
606,000 FA
3.
(30,000)1
NA
NA
NA
NA
(30,000)
NA
NA
NA
(30,000) FA
4.
NA
NA
15,000
NA
13,500
(28,500)2
NA
NA
NA
NA
5.
memo
no entry3
NA
NA
NA
NA
NA
NA
NA
NA
NA
6a.
165,000
NA
NA
NA
NA
165,000
165,000
NA
165,000
165,000 OA
6b.
(98,000)
NA
NA
NA
NA
(98,000)
NA
98,000
(98,000)
(98,000) OA
Totals
1,093,000
=
600,000
+
315,000
+
6,000
+
163,500
+
8,500
165,000
−
98,000
=
67,000
1,093,000 NC
1$100 x 5% = $5; $5 x 6,000 = $30,000
8-2
PROBLEM 8-22 (cont.)
b.
Concord Corp.
December 31 2014
Stockholders’ Equity
Preferred Stock, $100 par value, 5%, 6,000
shares issued and outstanding
$600,000
Common Stock, $5, par, 63,000 shares issued and
outstanding
315,000
Paid-In Capital in Excess of Par, Preferred Stock
6,000
Paid-In Capital in Excess of Par, Common Stock
163,500
Total Paid-In Capital
$1,084,500
Retained Earnings
8,500
Total Stockholders’ Equity
$1,093,000
PROBLEM 8-23
a. $400,000 40,000 shares = $10 per share
d. $800,000 + $100,000 = $900,000;
$900,000 40,000 shares = $22.50 per share
e. The market price of the common stock is $17.50 more than the average issue price. There
general economic conditions can make the share price rise.
2. No amount will be transferred from retained earnings.
3. Theoretically, the market price will be $20 ($40 2).
8-3
PROBLEM 8-24
Baskin Inc.
Statements Model
Balance Sheet
Income Statement
Statement of
Event
Assets
=
Liab.
+
S. Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
1.
+
NA
+
NA
NA
NA
+ FA
2.
+
NA
+
NA
NA
NA
+ FA
3.
+
NA
+
NA
NA
NA
+ FA
4.
−
NA
−
NA
NA
NA
− FA
5.
+
NA
+
NA
NA
NA
+ FA
6.
NA
+
−
NA
NA
NA
NA
7.
NA*
NA
NA
NA
NA
NA
NA
8.
NA
NA
NA
NA
NA
NA
NA
9.
NA
NA
NA
NA
NA
NA
NA
10.
−
−
NA
NA
NA
NA
− FA
*No entry: memo record of change in par value and # of shar
8-4
Solutions to Analyze, Think, Communicate
ATC 8-1
All dollar amounts are in millions.
a. The par value of Targets’ common stock is $.0833 (8.33 cents), according to its balance
sheet.
female.
d. Target’s statement of cash flows shows that $1,875 was spent to purchase its own stock in
treasury stock.
ATC 8-2
Wendy’s and Harley-Davidson data are in thousands, Coke data are in millions.
b. Wendy’s stated value per share:
$3,412 341,266 = $.01 per share
c. Wendy’s average issue price of common stock:
Coca-Cola’s average issue price of common stock:
2012 : ($3,412 + $1,066,069) i.e., $1,069,481 341,266 = $3.13
2011: ($3,391 + $ 968,392) i.e., $ 971,783 339,107 = $2.87
8-5
d. Wendy’s shares of stock outstanding at end of year:
2012: 470,424 − 78,051 = 392,373
2011: 470,424 − 80,700 = 389,724
ATC 8-2 (cont.)
Coca-Cola’s stock outstanding at end of year:
2012: 7,040 − 2,571 = 4,469
e. Wendy’s average cost per share of treasury stock:
2012: $382,926 78,051 = $4.91
f. Two of the companies appeared to be profitable because their retained earnings increased
g. One can determine the amount of increase in retained earnings, which is caused by profit,
8-6
ATC 8-2 (cont.)
h.
Wendy’s
(in thousands)
Stockholders’ Equity
2012
2011
Common Stock
$ 47,042
$ 47,042
Capital in Excess of Stated Value
2,782,765
2,779,871
Total Paid-in Capital
2,829,807
2,826,913
Retained Earnings
(467,007)
(434,999)
Other Adjustments
5,981
102
Treasury Stock
(382,926)
(395,947)
Total Stockholders’ Equity
$1,985,855
$1,996,069
Cola-Cola
(in millions)
Stockholders’ Equity
2012
2011
Common Stock
$ 1,760
$ 1,760
Capital Surplus
11,379
10,332
Total Paid-in Capital
13,139
12,092
Retained Earnings
58,045
53,621
Other Adjustments
(3,385)
(2,774)
Treasury Stock
(35,009)
(31,304)
Total Stockholders’ Equity
$ 32,790
$ 31,635
ATC 8-2 h. (cont.)
Harley Davidson
(in thousands)
Stockholders’ Equity
2012
2011
Common Stock
$ 3,412
$ 3,391
Additional Paid-in Capital
1,066,069
968,392
Total Paid-in Capital
1,069,481
971,783
8-7
Retained Earnings
7,306,424
6,824,180
Other Adjustments
(607,678)
(476,733)
Treasury Stock
(5,210,604)
(4,898,974)
Total Stockholders’ Equity
$ 2,557,623
$ 2,420,256
ATC 8-3
This solution is based on the company’s From10-K for the fiscal year ended December 31, 2012,
and amounts are in thousands, except for per share amounts.
a. As of December 31, 2012, Skechers’ total shareholders’ equity was $919,089. There were
39,021 shares of Class A Common Stock outstanding and 11,274 shares of Class A
Common Stock outstanding, for a total of 50,295 shares of common stock. This resulted
in a book value per share of $18.27. ($919,089 ÷ 50,295 shares) = $18.27.)
b. The par value of common stock is .1 cents per share.
d. (Though not asked for in the problem, note that on March 4, 2013, the first trading day
after the company filed its 2012 Form 10-K, Skechers’ stock was selling for $21.03 per
share, versus its book value of $18.27)
ATC 8-4
Note to Instructor: The factors given below are only selected factors and not meant to be all
inclusive.
MEMO
TO: Jim and Scott
FROM:
The advantages and disadvantages of the partnership and the corporate forms of business
organizations are shown below.
Partnership:
Advantages: Easy to form;
Not subject to many of the federal and state regulations imposed
Corporation:
Advantages: Separate legal entity; the owner’s liability is limited to investment;
Continuity of life; i.e., the corporation does not dissolve at the death,
etc. of owners;
Ownership is easily transferred;
ATC 8-5
a.
1. Converting to an accelerated method of depreciation would increase expense on the
income statement thereby decreasing net income and the stockholders’ equity section (i.e.,
2. Increasing the receivables expected to be uncollectible would increase the amount of bad
debt expense on the income statement with the resultant effect of reducing net income,
8-9
3. Increasing the percentage of estimated warranty claims would increase warranty expense
in the current period. This action would reduce net income and stockholders’ equity (i.e.,
retained earnings) on the balance sheet. Other balance sheet accounts affected would be
warranties payable, which would increase liabilities for the period.
b. Stinson’s actions would cause an increase in stockholders’ equity in subsequent
period’s earnings would be transferred to management through the bonus system.
ATC 8-5 (cont.)
c. The managers of a company are hired to make decisions that are in the best interest of the
stockholders (the owners of the company). They should make decisions that increase the
value of stockholders’ equity, not decisions that increase their own personal worth.
strategies are unethical. She is not doing her job, which is to look after the stockholders’
interest.
d. If bonuses were tied to stock prices, management would be motivated to make decisions
e. Since the company is expected to report a loss, the price earnings ratio cannot be
computed. Accordingly, Stinson’s strategy would not affect the price-earnings ratio.