978-1133939283 Chapter 13 Solution Manual Part 6

2015

Jan. 4

Mar. 8

25

Dec. 15

(70,800 shares × $20 = $1,416,000)

$224,000 + $188,800 = $412,800)

No entry required.

Declared a cash dividend of $4 per share on

56,000 shares of preferred stock and $0.40

per share on 472,000 shares of common stock

($4 × 56,000 + $0.40 × 472,000 =

Memo: The 240,000 shares of $8 par value common stock that are issued and out-

standing were split 2 for 1, resulting in 480,000 shares of $4 par value common

stock issued and outstanding.

Issued 8,000 shares of preferred stock in

exchange for a building valued at $320,000

No entry required.

P14. Comprehensive Stockholders’ Equity Transactions

1.

No entry required.

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11/28

12/31

*Cash dividends declared and stock dividends declared reduce Retained Earnings.

Preferred Stock Common Stock

872,000

1,416,000

P14. Comprehensive Stockholders’ Equity Transactions (Continued)

T accounts for stockholders’ equity

*

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2.

** Rounded

many other factors.

Book value per share usually does not affect market price, which is affected by

Torez Corporation

Stockholders’ Equity

December 31, 2015

P14. Comprehensive Stockholders’ Equity Transactions (Concluded)

Contributed capital:

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●

Companies buy back shares for several reasons, including:

Common stock buybacks generally increase earnings per share and return on equity

To distribute shares to employees through stock option plans.

C2. Conceptual Understanding: Purposes of Treasury Stock

An advantage of issuing common stock is that it improves the company’s debt to equity

ratio by increasing the amount of common stock outstanding in relation to long-term

Cases

C1. Conceptual Understanding: Reasons for Issuing Common Stock

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2.

3.

Google did not have to increase its authorized shares because management knew

stock to drop. A stock split often occurs after the price of a company’s stock has risen and

thus is a positive signal to the market that management is confident about the company’s

After Stock Offering

(in thousands)

Contributed capital:

C3. Interpreting Financial Reports: Effect of Stock Issue

$1,800,000,000

Issued 22,500,000 shares of $.001 par

value common stock at net proceeds of

Stockholders’ Equity

Google, Inc.

Balance Sheet

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1.

2.

**

Since retained earnings makes up about 80 percent of stockholders’ equity, the

holders have small gains, if any (Note 16).

This yield is almost one and one half percent. As a result, the stockholders’ total

return is dependent on share price changes. (Market price in Note 16)

Rounded

C5. Interpreting Financial Reports: Stockholders’ Equity

CVS has preferred stock and common stock. The preferred stock ($0.01 par value)

The dividend yield for fiscal 2011 is as follows:

**

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1.

( + ) / 2

2.

7.9%= $459

$5,846

$6,237

=

2010 = $459

=$178

$6,557

Return on Equity =

$5,454

2011 = $178

2.7%

Average Stockholders’ Equity

=

Southwest’s Return on Equity ratio (dollars in millions):

=$3,424

$36,734 = 9.3%

$35,768$37,700

2010 = $3,424

=$3,457

$37,876 = 9.1%

2011 = $3,457

$37,700$38,051

Return on Equity =

C6. Interpreting Financial Reports: Return on Equity, Treasury Stock, and Dividends Policy

CVS’s Return on Equity ratio (dollars in millions):

Average Stockholders’ Equity

Net Income

According to the statement of cash flows, CVS purchased $3,001 million of treasury

stock in 2011. In contrast, Southwest purchased $225 million of treasury stock in 2011.

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4.

C6. Interpreting Financial Reports: Return on Equity, Treasury Stock, and Dividends Policy

(Concluded)

From their income statements, statements of cash flows, and statements of stock-

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