FINE 2000 Chapter Notes - Chapter 14: Retained Earnings, Issued Shares, Share Capital
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Which of the following statements is correct?
| Open market purchase plans benefit small stockholders who do not need current cash dividends because of low brokerage costs resulting from volume purchases. | ||
| An open market purchase plan is a good option for firms that need to change their capital structure because, with this type of dividend reinvestment plan, the firms issue new shares of common stock to investors who reinvest their dividends. | ||
| One disadvantage of a new stock plan is that, because new shares of common stock are being issued, the firm incurs flotation costs that it passes on to its investors. | ||
| Dividend reinvestment plans provide current stockholders with the opportunity to automatically reinvest their dividends in shares of the company's preferred stock. |
Analyzing and Interpreting Equity Accounts and Comprehensive Income
Following is the shareholdersâ equity section of the 2013 balance sheet for Procter & Gamble Company and its statement of shareholdersâ equity.
| June 30 (In millions, except per share amounts) | 2013 |
|---|---|
| Shareholders' Equity | |
| Convertible Class A preferred stock, stated value $ 1 per share | |
| (600 shares authorized) | $ 1,137 |
| Non-voting Class B preferred stock, stated value $ 1 per share | |
| (200 shares authorized) | -- |
| Common stock, stated value $ 1 per share | |
| (10,000 shares authorized; shares issued: 2013-4,009.2) | 4,009 |
| Additional paid-in capital | 63,538 |
| Reserve for ESOP debt retirement | (1,352) |
| Accumulated other comprehensive income/(loss) | (7,499) |
| Treasure stock, at cost (shares held: 2013-1,266.9) | (71,966) |
| Retained earnings | 80,197 |
| Noncontrolling interest | 645 |
| Total shareholders' equity | $ 68,709 |
| Consolidated Statement of Shareholders' Equity | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Dollars in millions; Shares in thousands | Common Shares Outstanding | Common Stock | Preferred Stock | Additional Paid-in Capital | Reserve for ESOP Debt Retirement | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Retained Earnings | Noncontrolling Interest | Total |
| Balance June 30, 2012 | $ 2,748,033 | $ 4,008 | $ 1,195 | $ 63,181 | $ (1,357) | $ (9,333) | $ (69,604) | $ 75,349 | $ 596 | $ 64,035 |
| Net earnings | 11,312 | 90 | 11,402 | |||||||
| Other comprehensive income | 1,834 | 1,834 | ||||||||
| Dividends to shareholders: | ||||||||||
| Common | (6,275) | (6,275) | ||||||||
| Preferred, net of tax benefits | (244) | (244) | ||||||||
| Treasury purchases | (84,234) | (5,986) | (5,986) | |||||||
| Employee plan issuances | 70,923 | 1 | 352 | 3,573 | 3,926 | |||||
| Preferred stock conversions | 7,605 | (58) | 7 | 51 | â | |||||
| ESOP debt impacts | 5 | 55 | 60 | |||||||
| Noncontrolling interest, net | (2) | (41) | (43) | |||||||
| Balance June 30, 2013 | $ 2,742,327 | $ 4,009 | $ 1,137 | $ 63,538 | $ (1,352) | $ (7,499) | $ (71,966) | $ 80,197 | $ 645 | $ 68,709 |
(a) What does the term convertible (in reference to the company's Class A preferred stock) mean?
Convertible means the holder of the security has an obligation to convert (exchange) the security into another security.
Convertible means the holder of the security has an option to surrender the security and to receive cash at any time.
Convertible means the holder of the security has an option to convert (exchange) the security into another security.
Convertible means the holder of the security has an option to sell the security at any time.
(b) How many shares of common stock did Procter & Gamble issue when convertible Class A preferred stock was converted during fiscal 2013?
Answer
thousand shares
(c) For "employee plan issuances," at what average price was the common stock issued as of year-end 2013? (Round your answer to two decimal places.)
$Answer
(d) What is the accumulated other comprehensive income account?
The accumulated other comprehensive income account reflects the cumulative profit recognized by the company less the cumulative dividends that have been paid to shareholders.
The accumulated other comprehensive income account reflects the cumulative change in net assets (defined as assets less liabilities) for transactions other than net income transactions and transactions with shareholders.
The accumulated other comprehensive income account reflects the cumulative profit on transactions with shareholders.
The accumulated other comprehensive income account reflects the cumulative amount by which the company's common stock has increased or decreased since issuance.
(e) What cash dividends did Procter & Gamble pay in 2013 for each class of stock?
Common dividends =Answer
($ millions)
Preferred dividends =Answer($ millions)
Problem 1
Sweet Sixteen has two classes of stock authorized: $100 par preferred and $1 par value common. As of the beginning of 2012, 1,000 shares of preferred stock have been issued and 20,000 shares of common stock have been issued. The following transactions affect stockholdersâ equity during 2012:
March 1 Issue 3,000 additional shares of common stock for $22 per share.
April 1 Issue 5,000 additional shares of preferred stock for $110 per share.
June 1 Declare a cash dividend on common stock of $1 per share and a cash dividend on preferred stock of $5 per share to all stockholders of record on June 15.
June 30 Pay the cash dividends declared on June 1.
August 1 Repurchase 2,000 shares of common treasury stock for $18 per share.
October 1 Reissue 1,000 shares of treasury stock purchased on August 1 for $20 per share.
Sweet Sixteen has the following beginning balances in its stockholdersâ equity accounts on January 1, 2012: preferred stock, $100,000, common stock, $20,000; paid-in capital, $380,000; and retained earnings, $450,000. Net income for the year ended December 31, 2012, is $65,000.
Required:
1. Record each of these transactions.
2. Indicate whether each of these transactions would increase (+), decrease (â), or have no effect (NE) on total assets, total liabilities, and total stockholdersâ equity by completing the following chart.
| Transaction | Total Assets | Total Liabilities | Total Stockholdersâ Equity |
| Issue common stock | |||
| Issue preferred stock | |||
| Declare cash dividends | |||
| Pay cash dividends | |||
| Repurchase treasury stock | |||
| Reissue treasury stock |
3. Prepare the stockholdersâ equity section of the balance sheet as of December 31, 2012.
4. Prepare the statement of stockholdersâ equity for the year ended December 31, 2012.
5. Explain how items 3 and 4 are similar and how they are different.
