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14-39 Solutions
14.35 continued.
(3) Compensation Expense ........................................... 889
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–889
IncSt → RE
+889
ContriCap
(4) Revenues and Gains Net of Expenses and Losses . 14,065
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–14,065
IncSt → RE
+14,065
R E
To close revenues, gain, expense, and loss accounts to
retained earnings.
(5) Retained Earnings .................................................... 3,837
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–3,837
–3,837
R E
To declare and pay cash dividends.
(6) Marketable Securities ............................................... 326
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
+326
+326
OCInc →
AOCInc
To record net unrealized gains and losses for changes in
fair value of marketable securities.
Solutions 14-40
14.35 continued.
(7) Derivative Securities ................................................ 14
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
+14
or
–14
+14
OCInc →
AOCInc
14.36 (Sirius Satellite Radio, Inc.; journal entries for changes in shareholders’
equity.) (Amounts in Thousands)
(1) Cash ......................................................................... 82,941
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
+82,941
+22
ContriCap
+82,919
ContriCap
To record the issuance of common stock to third parties
for more than par value.
(2) Cash ......................................................................... 19,246
Additional Paid-in Capital ..................................... 19,242
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
+19,246
+4
ContriCap
+19,242
ContriCap
To record the issuance of common stock to employees
for more than par value.
(3) Compensation Expense ........................................... 52,683
14-41 Solutions
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–52,683
IncSt → RE
+52,683
ContriCap
To record the amortized cost of employee stock options.
Solutions 14-42
14.36 continued.
(4) Cash ......................................................................... 3,532
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
+3,532
+3
ContriCap
+3,529
ContriCap
To record the sale of common stock associated with stock
options.
(5) Additional Paid-in Capital ......................................... 5
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–5
ContriCap
+5
ContriCap
To record exercise of common stock warrants and
issuance of shares.
(6) Convertible Notes ..................................................... 3,184
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–3,184
+2
ContriCap
+3,182
ContriCap
To record conversion of notes into common stock.
14.37 (Anheuser-Busch Companies; journal entries for changes in shareholders’
equity.) (Amounts in Millions)
(1) Cash ......................................................................... 292.3
14-43 Solutions
14.37 continued.
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
+292.3
+8.8
ContriCap
+283.5
ContriCap
To record the issuance of common stock to employees
(2) Compensation Expense ........................................... 136.3
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–136.2
IncSt → RE
+136.1
ContriCap
+.2
ContriCap
To record the amortized cost of
employees stock
options.
The reason for the
credit
to
Treasury Stock
is not
explained
by Anheuser-Busch.
(3) Revenues, Gains, Expenses, and Losses ................ 2,115.3
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–2,115.3
IncSt → RE
+2,115.3
R E
(4) Retained Earnings .................................................... 932.4
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–932.4
–932.4
R E
To record the declaration and payment of cash dividends.
Solutions 14-44
14.37 continued.
(5) Treasury Stock—Common ....................................... 2,707.2
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–2,707.2
–2,707.2
ContriCap
To record repurchase of common stock held as treasury
stock.
(6) Net Unrealized Gains and Losses on Marketable
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–.3
–.3
OCInc →
AOCInc
To record net unrealized loss on marketable securities.
(7) Net Unrealized Gains and Losses on Cash Flow
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–2.0
or
+2.0
–2.0
OCInc →
AOCInc
To record net unrealized loss on cash flow hedges.
(8) Pension Liability ....................................................... 205.2
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
+205.2
+205.2
OCInc →
AOCInc
To reduce pension liability for a reduction in the mini-
mum pension liability or for changes in actuarial assump-
14-45 Solutions
tions, actuarial performance, or prior cost and increase in
other comprehensive income.
Solutions 14-46
14.38 (Monk Corporation; treasury shares and their effects on performance ratios.)
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
+714.1
+427.6
ContriCap
+286.5
ContriCap
The common shares were issued at an option price of $49.28 per share [=
amount includes a debit to Additional Paid-in Capital for the cost of stock
options previously amortized and a credit for the difference between the
cash proceeds plus the cost of the stock options over the par value of the
shares issued. The remaining credits to Common Stock and Additional
Paid-in Capital were for the amounts received for the .307 common shares
issued net of any amounts debited and credited to Additional Paid-in
Capital as a result of recognizing the cost of the options in the accounts.
(2) Treasury Stock—Common .................................... 2,572.8
Assets
=
Liabilities
+
Shareholders'
Equity
(Class.)
–2,572.8
–2,572.8
ContriCap
b. 2006/2007 2007/2008
Net Income:
Earnings per Common Share:
14-47 Solutions
Solutions 14-48
14.38 continued.
c. 2006 2007 2008
Book Value per Share:
Percentage Change:
There are several reasons why book value per share increases more
d. 2006 2007 2008
e. No. Monk has purchased considerably more treasury shares than are
needed for its stock option plans. Treasury shares do not receive
eliminating this low-yielding asset from the balance sheet, Monk’s overall
rate of return on common shareholders’ equity increases. The market
14-49 Solutions
Solutions 14-50
14.39 (Layton Ball Corporation; case introducing earnings-per-share calculations for
a complex capital structure.)
b. 1,000 options X $15 = $15,000 cash raised.
c. 2,000 warrants X $30 = $60,000 cash raised.
d. Before taxes, each converted bond saves $40 in annual interest expense.
2,500 + 10 shares per bond X 100 bonds = $11,900
3,500 shares =
e. The warrants are antidilutive and should be ignored if we seek the
14-51 Solutions
Solutions 14-52
14.39 continued.
f. Probably the
Wall Street Journal
should use the earnings per share that
results in the maximum possible dilution. It should clearly ignore
14.40 (Case for discussion: value of stock options.)
The answer must be either
a
. or
b
. The cost per option cannot exceed one
penny per share, for otherwise StartUp would merely buy the shares on the
Some firms, such as GE, grant to employees the right to buy a specified
number of shares of the firm’s stock at a fixed price, called the
exercise price
,
Such options have value to employees who receive them and many
companies, particularly the high-tech Silicon Valley companies, award such
14-53 Solutions
William H. Scott, Jr. of Scientific Applications International Corporation of
San Diego, has studied the costs to the issuing firm. He found that under a
Solutions 14-54
14.40 continued.
At the height of the debate, chief financial officers (CFOs) from Silicon
Valley lobbied against the FASB proposal. We believed that many of those
14-55 Solutions
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