246
P8–4
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Mortgage
Statement
Cash
=
Note Payable
4,500,000
Financing
4,500,000
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Preferred
Paid-In Capital in Excess
Statement
Cash
=
Stock
+
of Par—Preferred Stock
Mar. 13.
2,600,0001
Balance Sheet
Statement of
Assets
=
Liabilities
+
Stockholders’ Equity
Income
Cash Flows
Common
Paid-In Capital in Excess
Statement
Building1 + Land1
=
Stock
+
of Par—Common Stock
247
P8–5
1.
Total Preferred Dividends Common Dividends
Year Dividends Total Per Share Total Per Share
Year 1 ……………….. $ 28,000 $28,000 $ 0.70 $ 0 $ 0
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METRIC-BASED ANALYSIS
MBA 8–1
Solvency Metric Profitability Metric
Net Assets Earnings per Share
MBA 8–2
Solvency Metric Profitability Metric
Net Assets Earnings per Share
MBA 8–3
Solvency Metric Profitability Metric
Net Assets Earnings per Share
1. Issuing bonds payable ……………… No Effect No Effect
MBA 8–4
Solvency Metric Profitability Metric
Net Assets Earnings per Share
Mar. 8 Issued note payable ……………. No Effect No Effect
MBA 8–5
Solvency Metric Profitability Metric
Net Assets Earnings per Share
249
MBA 8–6
Solvency Metric Profitability Metric
Net Assets Earnings per Share
MBA 8–7
Solvency Metric Profitability Metric
Net Assets Earnings per Share
MBA 8–8
1. Year 2 Year 1
Debt ratio:
4. Home Depot is financed primarily with debt. The debt ratio and ratios of
250
MBA 8–9
Ratio of Stockholders’ Ratio of Liabilities
Debt Ratio Equity to Total Assets to Stockholders’ Equity
MBA 8–10
1. Year 2 Year 1
Debt ratio:
251
MBA 8–10, Concluded
5. Total liabilities have decreased slightly as a percent of total assets in Year 2;
MBA 8–11
Debt Ratio Price-Earnings Ratio
More than 50% (Yes, No) Above 10 (Yes, No)
Alcoa Yes Yes
252
CASES
Case 8–1
1. The so-called “underground economy” hides transactions from IRS scrutiny
by conducting business with cash (not check or credit card, which leaves an
2. Jas should respond that he would rather receive a payroll check as a normal
Case 8–2
This activity does not require the student to research the contingency notes for
1. Altria Group is a holding company for a number of businesses including Philip
253
Case 8–3
1. This case involves a transaction in which a security has been issued that has
characteristics of stock and debt. The primary argument for classifying the
2. In practice, the $25 million stock issuance would probably be classified as
common stock. However, full disclosure should be made of the 2% of sales
254
Case 8–4
The primary advantage of issuing preferred stock rather than bonds is the
preferred stock does not obligate Living Smart to pay dividends, yet interest on
Case 8–5
1. Plan 1 Plan 2
Shares of common stock ………………………………………. 400,000 500,000
2. a. Factors to be considered in addition to earnings per share:
A definite legal obligation exists to pay interest on bonds, but there is