Chapter 11 – Reporting and Analyzing Equity
1. As of September 29, 2012, the shares of common stock issued and
outstanding are 939,208 (see balance sheet). As of September 24, 2011,
the number of shares of common stock issued and outstanding is
929,277.
2. Total stockholders’ equity as of September 29, 2012 ……$118,210,000,000
3. As found on its statement of cash flows, Apple reported $2,488 million in
4. Apple’s income statement reports the following
(Fiscal years) 2012
2011
2010
5. Apple’s consolidated balance sheet reports no shares of treasury stock
6. Answer depends on the financial statement information obtained.
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Solutions Manual, Chapter 11
39
1. Book value per common share = Equity applicable to common shares
Common shares outstanding
2. Earnings per share = Net income
3. Dividend yield = Annual cash dividends per share
Market value per share
4. Price-earnings ratio = Market value per share
Earnings per share
Apple’s price-earnings ratio: $655.88/ $44.64 = 14.69
Google’s price-earnings ratio: $707.38/ $32.81 = 21.56
Interpretation: The price-earnings ratio of Google is almost 1.5 times
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Financial Accounting, 7th Edition
40
1. The balance sheet of McDonald’s shows that they have both preferred
2. The preferred stock has no par value. There are 165.0 million preferred
issued.
3. In 2011, the financing section of the statement of cash flows shows that
4. In 2011, the financing section of the statement of cash flows shows that
Cash ………………………………………………………………………………
15,000
Paid-In Capital, Treasury Stock ……………….………….
Treasury Stock, Common ……………………….….
13,400
c.
Cash ………………………………………………………………………………
12,000
Treasury Stock, Common ……………………….….
13,400
1. The team statement should include the following:
a. When a corporation “buys back” its stock (engages in a treasury
stock acquisition), the effect on financial position is a decrease in
2. The team should establish the acquisition entry as follows
Treasury Stock, Common ……………………………..……
13,400
Cash ……………………………………………………….
13,400
Reacquired 100 shares of $100 par value
common stock at a cost of $134 per share.
a.
Cash ………………………………………………………………………………
13,400
Treasury Stock, Common ……………………….….
13,400
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Financial Accounting, 7th Edition
42
3. When presenting and explaining the above entries to the team, the
following points should be made by the team members:
The similarities in all reissue entries a through e are:
• The net effect of the transaction is to increase assets and equity by
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Solutions Manual, Chapter 11
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1.
Plan A
Plan B
Net income ……………………………………………………..
$ 72,000
$ 72,000
Less preferred dividends ………………………………..
0
(10,000)
Net income for common stockholders …………….
$ 72,000
$ 62,000
Founder’s share of common equity …………………
80%
100%
Founder’s share of income after any preferred
stock dividends ……………………………………………….
$ 57,600
$ 62,000
Founder’s initial equity …………………………………..
$375,000
$375,000
Founder’s return on equity ……………………………..
15.4%
16.5%
2.
Plan A
Plan B
Net income ……………………………………………………..
$ 16,800
$ 16,800
Less preferred dividends ………………………………..
0
(10,000)
Net income for common stockholders …………….
$ 16,800
$ 6,800
Founder’s share of common equity …………………
80%
100%
Founder’s share of income after any preferred
stock dividends ……………………………………………….
$ 13,440
$ 6,800
Founder’s initial equity …………………………………..
$375,000
$375,000
Founder’s return on equity ……………………………..
3.6%
1.8%
3. The difference between the answers for parts 1 and 2 arises from the
3.6% in part 2 for Plan A, BUT this is more than the 1.8% for Plan B.
These results indicate that the 8% dividend rate on the preferred stock
is advantageous to the founder as long as the rate of return on the
assets is greater than 8% (this is the same as saying net income is over
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Financial Accounting, 7th Edition
44
1. Book value per common share = Equity applicable to common shares
Common shares outstanding
2. Earnings per share:
=(Net income – Preferred dividends) / Weighted-average common shares outstanding
3. Samsung’s EPS is ₩154,019, and Samsung declared ₩7,500 in cash
dividends per share during 2012. Consequently, for the current year,