C11–2 (continued)
Req. 11 (continued)
C11–2 (continued)
Req. 12
This problem can be set up as a future value calculation, which can be solved using tables,
Excel, or the financial calculator app. The problem asks what annuity should be invested to
11–60 Solutions Manual
© 2016 by McGraw–Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
ANSWERS TO SKILLS DEVELOPMENT CASES
S11–1
1. D
2. C
3. A
S11–2
Req. 1
The first column of the statement of stockholders’ equity shows that Lowe’s had issued
1,030 million shares of common stock at January 31, 2014, whereas The Home Depot
had issued 1,761 shares of common stock at February 2, 2014. Thus, Lowe’s had
$2.14. The first column of the statement of stockholders’ equity shows that the number
of shares issued by Lowe’s decreased over this time. Lowe’s does not report treasury
S11–3
The solutions to this project will depend on the company and/or accounting period
selected for analysis.
S11–4
Req. 1
There are at least two reasons why this is appropriate. First, for investors who bought
Activision stock in the initial public offering on June 9, 1983, the current market price
(about $22) would be more than they initially contributed to the company. Second, even
if investors had purchased their investments above the current market price, Activision
S11–5
Obviously, there is no right answer to this question. Just as in S10-5, we have found
that some people approach this question from the perspective that employees are more
important than investors. We try to point out that current workers and investors depend
on income from the corporation to survive. Nevertheless, some people will not budge
S11–6
These alternatives are designed to get students to think about stable current earnings
versus risky growth opportunities. Ultimately, risk and return preferences are individual
choices. We find that most students are interested in the concept of a portfolio to reduce
risk and the impact of inflation during the investment period.
S11–7
Each response will vary depending on the company selected and depending on how
“surprising” the information in the earnings or dividend announcement is. For example,
stock prices will change very little for a company that reports EPS that exactly matches
11–64 Solutions Manual
© 2016 by McGraw–Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
ANSWERS TO CONTINUING CASE
CC11-1
Req. 1
a)
Cash (1,000 x $12)………………………………………..
Preferred Stock ………………………………………..
12,000
12,000
b)
Treasury Stock (1,000 x $11)…………………………….
Cash (1,000 x $11)………………………….…..…
11,000
11,000
c)
Dividends ($0.10 x 51,000)………….……..…..
Dividends Payable ….…………………………….……
5,100
5,100
d)
Dividends Payable ………………………………………..
Cash ……………….……………………………………
5,100
5,100
Req. 2
A common stockholder would prefer issuance of additional preferred shares to avoid
diluting ownership and voting rights in the company. If more common shares were
issued, the common stockholder’s voting rights (as a percentage) would be reduced
(unless the common stockholder acquired additional shares).
Req. 3
Transaction
Balance Sheet
Assets
Liabilities
Stockholder’s Equity
a
+12,000
NE
+12,000
b
-11,000
NE
-11,000
c
NE
+5,100
-5,100
d
-5,100
-5,100
NE
Req. 4
Transaction
ROE
a
–
b
+
c
+
d
NE
CC11-2