Chapter 11 Interactive Presentation Principles of financial accounting mc graw hill 202020-ACG-2021C-25642

A company reported net income of $9,660,000 for the year. There were 4.1 million shares of common stock outstanding at the beginning of the year and 4.3 million shares outstanding at the end of the year. No dividends were declared during the year. What is the company's earnings per share (EPS) for the year

$2.30 EPS = (Net income − Preferred dividends) ÷ Average number of common shares outstanding EPS = ($9,660,000 − $0) ÷ [(4,100,000 + 4,300,000) ÷ 2] = $9,660,000 ÷ 4,200,000 = $2.30 per share

A company has net income of $14,600,000. Stockholders' equity was $47,550,000 at the beginning of the year and $68,150,000 at the end of the year. The company does not have any preferred stock outstanding. What is the company's return on equity (ROE) during the year?

0.25 ROE = (Net income − Preferred dividends) ÷ Average common stockholders' equity ROE = ($14,600,000 − $0) ÷ [($47,550,000 + $68,150,000) ÷ 2] = $14,600,000 ÷ $57,850,000 = 0.25

Knowledge Check 01Match the term and the definition. 1. The date on which the board of directors officially approves a dividend 2. The date on which a cash dividend is paid to the stockholders of record 3. The date on which the Corporation prepares the list of current stockholders

1. Date of declaration 2. Payment date 3. Date of record

Match the term and the definition.

1. contributed capital 2.retained earnings 3.treasury stock 4.comprehensive other comprehensive income

Match the term and the definition. 1.Shares of stock that have been distributed by the corporation 2.Shares that are currently held by stockholders (not the corporation itself) 3.The maximum number of shares of capital stock of a corporation that can be issued

1. issued shares 2. outstanding shares 3. authorized shares

During the current year, Armstrong Corporation reported net income of $18 million and EPS of $5.00 per share. The average number of common shares outstanding during the year was 3.6 million. The price of a share of its common stock was $2.50 at the beginning of the year and $5.00 at the end of the year. What is the company's price/earnings (P/E) ratio at the end of the year?

1.00 Price/earnings (P/E) ratio = Current stock price ÷ Earnings per share Price/earnings (P/E) ratio = $5.00 ÷ $5.00 = 1.00

Which of the following statements about preferred dividends is true?

A cumulative dividend preference guarantees dividends owed from prior years will be paid to preferred stockholders before dividends are paid to common stockholders.

Which of the following statements about preferred dividends is true?

A preferred stock dividend can be expressed in either a percentage of par value or a dollar amount. Dividends on preferred stock, if any, may be paid at a fixed rate. If a company issues 10% preferred stock with a par value of $10 per share, the annual per-share dividend, if declared will equal $1.

Which of the following statements about the statement of retained earnings and the statement of stockholders' equity are true? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

A statement of retained earnings shows how net income increased and dividends decreased the retained earnings balance during the period. Public companies report a more comprehensive version of the statement of retained earnings called the statement of stockholders' equity to show the causes of changes in all stockholders' equity accounts. The statement of stockholders' equity has a column for each stockholders' equity account and shows the increases and decreases in each account balance during the period.

Which of the following items are used to compute return on equity (ROE)?

Average common stockholders' equity net income preferred dividends

which of the following items are used to compute earnings per share (ESP)?

Average number of common shares outstanding. Net Income Preferred dividends

Which of the following items are used to compute the price/earnings (P/E) ratio?

Current stock price Earnings per share

Which of the following statements about the differences between common stock and preferred stock are true?

Dividends on preferred stock, if any, may be paid at a fixed rate. If the corporation goes out of business, common stockholders are paid last from whatever assets remain after paying preferred stockholders.

Which of the following statements about dividends are true?

Dividends reduce Retained Earnings A corporation's board of directors chooses whether or not to declare dividends A corporation is legally obligated to distribute dividends once they are declared.

Which of the following describes the effect of a stock dividend?

Does not affect total stockholders' equity

Which of the following describes the effect of a stock split?

Does not affect total stockholders' equity

Which of the following are advantages of equity financing? ith a question mark will be automatically graded as incorrect.)

Equity does not have to be repaid. Dividends are optional.

In order to retain their ownership percentages, existing stockholders may be given the first chance to buy newly issued stock before it is offered to others. What term is used to describe this right?

Preemptive rights

Which of the following are reasons that corporations can raise large amounts of money?

Shares of stock can be purchased in small amounts Stockholders are not liable for the corporation's debts

Burlington Corporation issued 1,000 shares of $1 par value preferred stock for $10 per share. Prepare the appropriate journal entry to record the stock issuance Record the issue of 1,000 shares of $1 par value preferred stock for $10 per share.

The entry includes a debit to Cash for $10,000 (calculated as 1,000 shares × $10 per share), a credit to Preferred Stock for $1,000 (calculated as 1,000 shares × $1 per share), and a credit to Additional Paid-in Capital—Preferred for $9,000 [calculated as 1,000 shares × ($10 per share − $1 per share)].

Previously, Feinberg Corporation repurchased 1,000 shares of its $0.05 par value common stock for $25 per share. Today, the company reissues 500 shares of its treasury stock for $26 per share. Prepare the appropriate journal entry to record the reissuance of the shares.

The entry includes a debit to Cash for $13,000 (calculated as 500 shares × $26 per share), a credit to Treasury Stock for $12,500 (calculated as 500 shares × $25 per share), and a credit to Additional Paid-In Capital for $500 [calculated as 500 shares × ($26 − $25 per share)].

Byrd Corporation issued 5,000 shares of $0.05 par value common stock for $10 per share. Prepare the appropriate journal entry to record the stock issuance.

The entry includes a debit to Cash for $50,000 (calculated as 5,000 shares × $10 per share), a credit to Common Stock for $250 (calculated as 5,000 shares × $0.05 per share), and a credit to Additional Paid-in Capital for $49,750 [calculated as 5,000 shares × ($10 per share − $0.05 per share)].

Previously, Milad Corporation issued 5,000 shares of $0.05 par value common stock for $10 per share. Today, the company repurchased 1,000 shares of its stock for $25 per share. Prepare the appropriate journal entry to record the repurchase of the shares.

The entry includes a debit to Treasury Stock and a credit to Cash for $25,000 (calculated as 1,000 shares × $25 per share).

On April 22, the board of directors for Cosmic Candy, Incorporated declared a cash dividend of $1 per share payable to stockholders of record on May 15. The dividends are paid on June 8. The company has 1,000 shares of stock outstanding. Prepare the appropriate journal entry that will be recorded on June 8. Record the payment of cash dividend of $1 per share on June 8 for 1,000 shares of stock outstanding

The journal entry on the payment date includes a debit to Dividends Payable (to reduce the liability created on the declaration date of April 22) and a credit to Cash for $1,000 (calculated as 1,000 shares × $1 per share).