FINANCIAL STATEMENT ANALYSIS CASES
CASE 1
(a) Management might purchase treasury stock to provide to stockholders
a tax-efficient method for receiving cash from the corporation. In
addition, it might have to repurchase shares to have them available to
(b) Earnings per share is calculated by dividing net income by the weighted–
average number of shares outstanding during the year.
If shares are reduced by treasury stock purchases, the denominator
(c) One measure of solvency is the ratio of debt divided by total assets.
This ratio shows how many dollars of assets are backing up each dollar
of debt, should the company become financially troubled. For 2011 and
2010, this can be calculated as follows:
2011
2010
FINANCIAL STATEMENT ANALYSIS CASES (Continued)
CASE 2
(a) The date of record marks the time when ownership of the outstanding
shares is determined for dividend purposes. This in turn identifies
(b) The purpose of a stock split is to increase the marketability of the
stock by lowering its market price per share. This may make it easier
ACCOUNTING, ANALYSIS, AND PRINCIPLES
Accounting
January 13, 2014
Retained Earnings ($1.05 X 60,000) ………………………….
63,000
Cash ………………………………………………………………
April 15, 2014
Retained Earnings [(10% X 60,000) X $14] ………………..
84,000
May 15, 2014
Treasury Stock (2,000 X $15) ……………………………………
30,000
Cash ………………………………………………………………
November 15, 2014
Cash ($18 X 1,000) …………………………………………………..
18,000
Paid-in Capital from Treasury Stock …………………
Treasury Stock ……………………………………………….
December 31, 2014
Income Summary ……………………………………………………
Retained Earnings …………………………………………..
ACCOUNTING, ANALYSIS, AND PRINCIPLES (Continued)
The ending balances are indicated in the following partial balance sheet:
AGASSI CORPORATION
Balance Sheet
December 31, 2014
Capital stock
Common stock—par value $10 per share,
outstanding (1) ………………………………………. $ 660,000
Additional paid-in capital
In excess of par—
common (2) ……………………………………………. $524,000
Analysis
Payout ratio: $63,000 ÷ $ 370,000 = 17%
Principles
Treasury stock sold above or below cost does not result in gains or losses
PROFESSIONAL RESEARCH
(a) See FASB ASC 505-10–50.
(b) (FASB ASC 505-10–20.—Glossary)
1. Security—is defined as evidence of debt or ownership or a related
right. It includes options and warrants as well as debt and stock.
(c) FASB ASC 505-10–50-3. An entity shall explain, in summary form within
its financial statements, the pertinent rights and privileges of the
various securities outstanding. Examples of information that shall be
disclosed are dividend and liquidation preferences, participation rights,
PROFESSIONAL SIMULATION
Note: This assignment is available on the Kieso website.
Explanation
(a) Common stock represents an owner’s claim against a portion of the
total assets of the corporation. As a result, it is a residual interest. It
therefore is part of stockholders’ equity.
(d) The accumulated deficit is larger in the current year because AMR, like
many other major airlines, reported a net loss of $761 million. AMR did
not pay dividends in the current year, which would reduce retained
earnings.
Analysis
IFRS CONCEPTS AND APPLICATION
IFRS15-1
The primary IFRS reporting standards related to stockholders’ equity are
IFRS15-2
Key similarities between IFRS and GAAP for transactions related to
stockholders’ equity pertain to (1) issuance of shares, (2) purchase of
Major differences relate to terminology used, introduction of items such as
revaluation surplus, and presentation of stockholders equity information.
In addition, the accounting for treasury stock retirements differs between
IFRS and GAAP. Under GAAP a company has the option of charging the
IFRS15-3
It is likely that the statement of stockholders’ equity and its presentation
will be examined closely in the financial statement presentation project. In
addition the options of how to present other comprehensive income under
GAAP will change in any converged standard in this area.
IFRS15-4
No, Mary should not make that conclusion. While IFRS allows unrealized
IFRS15-5
Authorized ordinary shares—the total number of shares authorized by the
country of incorporation for issuance.
IFRS15-6
The answers are summarized in the table below:
Account Classification
(a) Share Capital—Ordinary Share capital
(b) Retained Earnings Retained earnings
IFRS15-7
Cash ………………………………………………………………………. 4,500
IFRS15-8
WILCO CORPORATION
Equity
December 31, 2014
Share Capital—Ordinary, $5 par value ………………………. $ 510,000
IFRS15-9
Cash ………………………………………………………………………. 13,500
Share Capital—Preference (100 X $50)……………….. 5,000
Allocated to ordinary
$15,000
$6,000
X $13,500 = $ 5,400
$15,000
$9,000
IFRS15-10
(a) $1,000,000 X 6% = $60,000; $60,000 X 3 = $180,000. The cumulative
dividend is disclosed in a note to the equity section; it is not reported
as a liability.
(b) Share Capital—Preference (3,000 X $100) …….. 300,000
IFRS15–11
TELLER CORPORATION
Partial Statement of Financial Position
December 31, 2014
Equity
Share capital—preference, cumulative,
par value $50 per share; authorized
IFRS15-12
(a) IAS 1 addresses disclosure of information about capital structure.
(b) An entity shall disclose the following, either in the statement of
financial position or the statement of changes in equity, or in the notes:
(a) for each class of share capital:
(i) the number of shares authorised;
(ii) the number of shares issued and fully paid, and issued but
not fully paid;
(b) a description of the nature and purpose of each reserve within
equity (para. 79).
An entity shall present, either in the statement of changes in equity or in
the notes, the amount of dividends recognised as distributions to owners
during the period, and the related amount per share (para. 107).
IFRS15-12 (Continued)
IAS 8 requires retrospective adjustments to effect changes in accounting
policies, to the extent practicable, except when the transition provisions in
another IFRS require otherwise. IAS 8 also requires restatements to correct
IFRS15–13
(a) M&S’s does not have any preference shares.
(b) M&S’s ordinary shares have a par value of 25p per share. Like many
companies, the par value of M&S’s ordinary shares is small relative to
its market value.
(f) Return on ordinary share equity:
2012: £489.6/[£2,790.2 + £2,673.5/2] = 17.9%
(g) Payout ratio: