Title: Serial Problem 1
QA_Ori:
1a. Journal entry for issuance of common stock to Cicely
1b. Journal entry for issuance of preferred stock to Marcello
1c. Journal entry to record $86,000 borrowed from the bank
Title: Serial Problem 2
QA_Ori:
Evaluation of the three proposals
a. Cicely’s investment as a common shareholder would mean that Adria would have
a second person who would be an owner. Adria has been working on her own business
As Cicely is an owner there is no need to repay the $86,000, nor is there
b. Having a preferred shareholder means that Adria’s Uncle Marcello will not have
c. The loan requires regular monthly payments, so Adria will need to budget the
Title: Serial Problem 3
QA_Ori: There is no correct answer to the question of which proposal Adria
should adopt. Class discussion might indicate which proposal the class prefers.
Title: Reporting in Action 1
QA_Ori:
(All shares in thousands.)
As of December 31, 2011, the shares of common stock issued and outstanding
The weighted-average common shares used in calculating earnings per share
are disclosed on the Statement of Income. At December 31, 2011, the basic
Title: Reporting in Action 2.
QA_Ori:
* Given that there is only one class of stock issued and outstanding, all the equity
Title: Reporting in Action 3
QA_Ori: As found on the Statement of Cash Flows, Polaris made $61,585,000 and
Title: Reporting in Action 4
QA_Ori:
Polaris’s income statement reports the following
2011 2010 2009
Title: Reporting in Action 5
QA_Ori: Polaris’s consolidated balance sheet reports no shares of treasury stock in
2011 and 2010.
Title: Reporting in Action 6
QA_Ori: Answer depends on the financial statement information obtained.
Title: Comparative Analysis 1
QA_Ori:
Book value per common share =
Polaris’s book value per common share
Title: Comparative Analysis 2
QA_Ori:
Title: Comparative Analysis 3
QA_Ori:
Dividend yield =
Title: Comparative Analysis 4
QA_Ori:
Price-earnings ratio =
Interpretation: The price-earnings ratio of Arctic Cat is over twice that of Polaris.
Title: Ethics Challenge
QA_Ori:
During the course of her duties, Harriet has learned information that others might not
It is possible that the new drug will not be as profitable as expected, and the stock might
Title: Communicating in Practice
QA_Ori:
There is no set solution to this activity. Solutions will vary based on the industry and the
companies selected.
Title: Taking It to the Net 1
QA_Ori:
Title: Taking It to the Net 2
QA_Ori: The preferred stock has no par value. There are 165.0 million preferred shares
Title: Taking It to the Net 3
QA_Ori: In 2011, the financing section of the statement of cash flows shows that
Title: Taking It to the Net 4
Title: Teamwork in Action 1
QA_Ori:
The team statement should include the following:
a. When a corporation “buys back” its stock (engages in a treasury stock
b. Reasons for “buybacks”:
The following are what should be provided in a team statement:
Title: Teamwork in Action 2
QA_Ori:
The team should establish the acquisition entry as follows
a. Cash 13,400
b. Cash 15,000
c. Cash 12,000
d. Cash 12,000
Paid-In Capital, Treasury Stock 1,000
e. Cash 12,000
The team should establish the acquisition entry as follows
Title: Teamwork in Action 3
QA_Ori:
The similarities in all reissue entries a through e are:
The differences in reissue entries b through e are:
(e) Reissuing below cost reduces Retained Earnings when Paid-In Capital* does not
exist.
*Refers to the Paid-In Capital, Treasury Stock account.
Title: Entrepreneur Decision 1
QA_Ori:
Plan A Plan B
Net income $ 72,000 $ 72,000
Less preferred dividends 0 (10,000)
Title: Entrepreneur Decision 2
QA_Ori:
Plan A Plan B
Net income $ 16,800 $ 16,800
Less preferred dividends 0 (10,000)
QA_Edit:
Title: Entrepreneur Decision 3
QA_Ori:
The difference between the answers for parts 1 and 2 arises from the percent of return
generated with the assets invested in the corporation.
In part 1, Andrew’s return on equity is 15.4% for Plan A, which is less than the
These results indicate that the 8% dividend rate on the preferred stock is
advantageous to Andrew as long as the rate of return on the assets is greater than 8%
Title: Hitting the Road
QA_Ori:
There is no formal solution for this field activity. Students often find this assignment
Title: Global Decision 1
QA_Ori:
Book value per common share =
KTM’s book value per common share
QA_Edit:
Book value per common share = Equity applicable to common shares / Common shares
outstanding.
Title: Global Decision 2
QA_Ori:
Earnings per share =
(Instructor’s note: At the date this problem was written, €1 was equal to about $1.24.
This means that KTM’s BVPS is about $25.93, and its EPS is about $2.46)
Title: Global Decision 3
QA_Ori:
KTM’s EPS is €1.98, and its statement of changes in shareholders’ equity reports