(20-30 min.) P 10-76B
Req. 1 and 2
ASSETS
=
LIABILITIES
+
STOCKHOLDERS’
EQUITY
CASH
FLOW
3
$297,000
=
$ 0
+
$297,000
$+297,000
19
(83,700)
=
0
+
(83,700)
-83,700
24
44,800
=
0
+
44,800
+44,800
15
0
=
8,000
+
(8,000)
-0-
1
( 8,000)
=
(8,000)
+
0
-8,000
22
0
=
0
+
0
-0-
(40-50 min.) P 10-77B
Req. 1
Hunt Designers, Inc.
Balance Sheet
December 31, 2014
ASSETS
LIABILITIES
Current:
Current:
Cash ………………………..
$ 53,000
Accounts payable ………………..
$130,000
Accounts receivable,
Accrued liabilities ………………..
25,000
net ………………………..
27,000
Dividends payable ……………….
6,000
Inventory …………………
98,000
Total current liabilities …………….
161,000
Prepaid
expenses ………………
14,000
Long-term note payable ………….
95,000
Total current assets …….
192,000
Total liabilities ………………………..
256,000
Property, plant,
STOCKHOLDERS’
and equipment,
EQUITY
net …………………………..
355,000
Common stock,
Intangible assets:
$2 par, 1,250,000 shares
Trademarks, net ……….
3,000
authorized, 118,000
Goodwill…………………..
18,000
shares issued and 110,000
shares outstanding ……………..
236,000
Paid–in capital in excess of
par— common …………………….
75,600
Retained earnings …………………..
25,400*
Less: Treasury stock,
common, 8,000 shares
at cost …………………………………
(25,000)
Total stockholders’ equity……….
312,000
Total liabilities and
Total assets …………………
$568,000
stockholders’ equity ……………
$568,000
(continued) P 10-77B
Req. 2
Net
profit
=
Net income
=
$71,000
=
8.9%
margin
Net sales
$800,000
ratio
Asset
=
Net sales
=
$800,000
=
$800,000
=
1.51
turnover
Average total
($495,000+$568,000)/2
$531,500
assets
Leverage
=
Average total
assets
=
$531,500
=
1.95
ratio
Avg. stockholders’
equity
($233,000+$312,000) /2
Net profit
x
Asset
=
margin ratio
turnover
ROA
8.9%
x
1.51
=
13.4%
ROA
x
Leverage
=
ROE
ratio
13.4%
1.95
=
26.1%
(continued) P 10-77B
Req. 3
These rates of return suggest strength. The company is generating a
8.9% net profit margin ratio indicating great effectiveness in achieving
(15-20 min.) P 10-78B
Req. 1
Req. 2
Price per share of stock issuance:
$180 million
received
=
$4.50 per share
40 million shares
issued
Req. 3
Cost of treasury stock sold: $7 million
Req. 4
Challenge Exercises and Problem
(20-25 min.) E 10-79
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
(a)
Cash (56,000* × $8) ………………………………….
448,000
Common Stock …………………………………..
56,000
Additional Paid-in Capital ……………………
392,000
Issued stock.
(b)
Treasury Stock (800 × $4) ……………………….
3,200
Cash …………………………………………………
3,200
Purchased treasury stock.
(c)
Cash ……………………………………………………..
3,600
Treasury Stock ($3,200 − $2,000) ………..
1,200
Additional Paid-in Capital ……………………
2,400
Resold treasury stock.
(d)
Revenues …………………………..………………….
177,000
Expenses ………………………………………….
112,000
Retained Earnings …………………………….
65,000
Closed net income to Retained Earnings.
(d)
Retained Earnings ($65,000 − $41,000) …….
24,000
Cash …………………………………………………
24,000
Declared and paid dividends.
_____
*$56,000 ÷ $1 par value per share = 56,000 shares issued.
(20-25 min.) E 10-80
Statement of cash flows:
Cash Flows from Financing Activities:
Issuance of common stock ……………………………………
$448,000
Purchase of treasury stock ……………………………………
(3,200)
Sale of treasury stock …………………………………………..
3,600
Payment of dividends ……………………………………………
(24,000)
(15 min.) E 10-81
Preferred stock:
Trufante retired preferred stock of $132 million ($738 − $606).
Common stock and Additional paid-in capital:
Trufante issued 15 million shares of common
stock for $45 million, computed as follows:
Millions
Common stock ($900 − $885) …………………………………..
$ 15
Additional paid-in capital ($1,496 − $1,466) ………………
30
Total received for issuance of common stock …………..
$45
Retained earnings:
Millions
Beginning balance ………………………………………………………
$19,104
Add: Net income …………………………………………………………
2,920
Less: Dividends declared ……………………………………………
(1,363)
Ending balance …………………………………………………………..
$20,661
Treasury stock:
Trufante purchased treasury stock for $160 million ($2,800 − $2,640).
(15 min.) E 10-82
Additional
Amounts in Millions
Common
Stock
+
Paid-in
Capital
+
Retained
Earnings
−
Treasury
Stock
=
Total
Equity
Balance, Dec. 31, 2014 …
$ 10.01
$9.0
$44.0
$63.0
Issuance of stock ………..
9.02
9.02
18.0
Stock dividend …………….
1.93
20.95
(22.8)4
—
Purchase of treasury
stock ………………………
$(9.0)
(9.0)
Net income ………………….
24.0
24.0
Cash dividends ……………
(13.0)
(13.0)
Balance, Dec. 31, 2015 …
$20.9
$38.9
$32.2
$(9.0)
$83.0
Computations:
1$10,000,000 ÷ $1 par = 10,000,000 shares
29,000,000 × $1 par = $9,000,000
(20-25 min.) P 10-83
Req. 1
Req.2
Req. 3
Common stock $ 100,000
Req. 4
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Cash ………………………………………………………. 2,080,000
Req. 5
(continued) P 10-83
Req. 6
Proceeds from purchase of treasury stock $792,000
Req. 7
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Cash ($198,000 + $5,000)……………………….. 203,000
Req. 8
Journal
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Retained Earnings………………………….. 3,000,000
Decision Cases
(30-45 min.) Decision Case 1
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Smith, Capital …………………………………………..
25,000
Jones, Capital …………………………………………..
25,000
Common Stock …………………………………….
50,000
To incorporate the business, close the capital
accounts of Smith and Jones, and issue
common stock to them.
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Plan 1:
Cash ………………………………………………………..
80,000
Preferred Stock (800 × $100) ………………….
80,000
To issue preferred stock to outside investors.
Plan 2:
Cash ………………………………………………………..
55,000
Preferred Stock …………………………………….
55,000
To issue preferred stock to outside investors.
Cash ………………………………………………………..
35,000
Common Stock …………………………………….
35,000
To issue common stock to outside investors.
(continued) Decision Case 1
Req. 3
Plan 1:
Stockholders’ Equity
Preferred stock, 6%, $100 par, nonvoting,
10,000 shares authorized, 800 shares issued and
outstanding ……………………………………………………………
$ 80,000
Common stock, $1 par, 500,000 shares authorized,
50,000 shares issued and outstanding …………………….
50,000
Retained earnings ($120,000 − $30,000) ………………………..
90,000
Total stockholders’ equity ………………………………………
$220,000
Plan 2:
Stockholders’ Equity
Preferred stock, $5, no-par, 10,000 shares authorized,
500 shares issued and outstanding …………………………
$ 55,000
Common stock, $1 par, 500,000 shares authorized,
85,000 shares issued and outstanding …………………….
85,000
Retained earnings ($120,000 − $30,000) ………………………..
90,000
Total stockholders’ equity ………………………………………
$230,000