ACCT 1A Lecture Notes - Lecture 14: Share Capital, Retained Earnings, Authorised Capital
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Consider the following information taken from the shareholders' equity section:
| (dollar amounts in thousands) | |||||
| 2018 | 2017 | ||||
| Preferred shares | $ 1,000 | $ 1,000 | |||
| Common shares, 258,052,356 and 274,001,656 shares issued and outstanding in 2018 and 2017, respectively | 3,343 | 3,310 | |||
| Contributed surplusâcommon shares | 766,382 | 596,239 | |||
| Retained earnings | 2,192,674 | 2,424,403 | |||
| Accumulated other comprehensive (loss) income | (206,662) | 58,653 | |||
| Total shareholdersâ equity | $2,756,737 | $3,083,605 | |||
| Additional Information (all numbers in thousands other than per share information): | 2018 | ||
| Weighted average common shares outstanding | 260,000 | ||
| Price per share at year-end | $105.45 | ||
| Net income | $1,358,950 | ||
| Preferred dividends | $100,000 | ||
| Common dividends | $213,440 | ||
| Common dividends per share | $.82 | ||
| Share repurchases | $834,975 | ||
Required:
1. Calculate the following for 2018 (Note: Round answers to two decimal places):
| Shareholder Payout: | ||
| Dividend yield | % | |
| Dividend payout | % | |
| Total payout | % | |
| Share repurchase payout | % | |
| Shareholder Profitability: | ||
| Return on common equity | % | |
| EPS | $ | per share |
Common Stock Issuance, Treasury Stock, Preferred Stock,Dividends, Comprehensive Income, Disclosure. Castleline,Inc. reported the following shareholdersâ equity section as of thebeginning of the current year:
Stockholder's Equity
| Contributed Capital: | |
| Common Stock, $1 Par Value, 3,850,000 shares authorized,905,000 shares issued, and 821,500 shares outstanding | $905,000 |
| Additional Paid-in Capital in Excess of Par-Common | 22,625,000 |
| Total Contributed Capital: | $23,530,000 |
| Retained Earnings: | $8,957,450 |
| Accumulated Other Comprehensive Income | 1,057,600 |
| Less: Treasury Stock (83,500 common stock shares at cost) | (1,670,000) |
| Total Stockholders Equity: | $31,875,050 |
During the current year, Castleline engaged in the followingtransactions affecting the stockholdersâ equity section of itscurrent balance sheet.
Issued 400,000 shares of its $1 par value common stock at $31per share. The underwriter charged a 3% fee for issuing the shares.The stock issue costs are not capitalized.
Issued 500,000 shares of $10 par value 6% preferred stock(2,550,000 authorized) at $40 per share. These shares wereprivately placed and Castleline did not pay stock issue costs.
Purchased 220,000 shares of common stock at $32 per share.
Declared a $450,000 dividend for the first half of the year.(The declarations should be recorded separately for the common andthe preferred shares.)
Sold 105,000 of the treasury shares at $44 per share. (The83,500 treasury shares on hand at the beginning of the year areconsidered sold first. The company paid $20 per share for theseshares of treasury stock).
Paid the cash dividends.
Reported net income of $3,180,500 for the current year.
In addition to the net income, Castleline incurred an $801,000unrealized loss on an available-for-sale investment.
Declared a $450,000 cash dividend for the second half of theyear. (The declarations should be recorded separately for thecommon and the preferred shares.)
Closed out all dividends and other comprehensive incomeaccounts.
Required »
Prepare all journal entries required to record the transactionslisted above.
Complex Balance Sheet
Presented below is the unaudited balance sheet as of December31, 2016, prepared by Zeus Manufacturing Corporationâsbookkeeper.
| Zeus Manufacturing Corporation Balance Sheet for the Year Ended December 31, 2016 | ||||
| Assets | Liabilities and Shareholders' Equity | |||
| Cash | $225,000 | Accounts payable | $133,800 | |
| Accounts receivable (net) | 345,700 | Mortgage payable | 900,000 | |
| Inventories | 560,000 | Notes payable | 500,000 | |
| Prepaid income taxes | 40,000 | Lawsuit liability | 80,000 | |
| Investments | 57,700 | Income taxes payable | 61,200 | |
| Land | 450,000 | Deferred tax liability | 28,000 | |
| Building | 1,750,000 | Accumulated depreciation | 420,000 | |
| Machinery and equipment | 1,964,000 | Total Liabilities | $2,123,000 | |
| Goodwill | 37,000 | Common stock, $50 par; 40,000 shares issued | $2,231,000 | |
| Total Assets | $5,429,400 | Retained earnings | 1,075,400 | |
| Total Shareholders' Equity | $3,306,400 | |||
| Total Liabilities and Shareholders' Equity | $5,429,400 | |||
Your company has been engaged to perform an audit, during whichyou discover the following information:
Checks totaling $14,000 in payment of accounts payable weremailed on December 31, 2016, but were not recorded until 2017. Latein December 2016, the bank returned a customerâs $2,000 checkmarked "NSF," but no entry was made. Cash includes $100,000restricted for building purposes.
Included in accounts receivable is a $30,000 note due onDecember 31, 2019, from Zeusâs president.
During 2016, Zeus purchased 500 shares of common stock of amajor corporation that supplies Zeus with raw materials. Total costof this stock was $51,300, and fair value on December 31, 2016, was$47,000. The decline in fair value is considered temporary. Zeusplans to hold these shares indefinitely.
Treasury stock was recorded at cost when Zeus purchased 200 ofits own shares for $32 per share in May 2016. This amount isincluded in investments.
On December 31, 2016, Zeus borrowed $500,000 from a bank inexchange for a 10% note payable, maturing December 31, 2021. Equalprincipal payments are due December 31 of each year beginning in2017. This note is collateralized by a $250,000 tract of landacquired as a potential future building site, which is included inland.
The mortgage payable requires $50,000 principal payments, plusinterest, at the end of each month. Payments were made on January31 and February 28, 2017. The balance of this mortgage was due June30, 2017. On March 1, 2017, prior to issuance of the auditedfinancial statements, Zeus consummated a noncancelable agreementwith the lender to refinance this mortgage. The new terms require$100,000 annual principal payments, plus interest, on February 28of each year, beginning in 2018. The final payment is due February28, 2025.
The lawsuit liability will be paid in 2017.
Of the total deferred tax liability, $5,000 is considered acurrent liability.
The current income tax expense reported in Zeusâs 2016 incomestatement was $61,200.
The company was authorized to issue 100,000 shares of $50 parvalue common stock.
Required:
Prepare a corrected classified balance sheet as of December 31,2016.
| Zeus Manufacturing Corporation Balance Sheet December 31, 2016 | |||
| Assets | |||
| Current Assets: | |||
| Cash | $ | ||
| Accounts receivable (net) | |||
| Inventories | |||
| Total current assets | $ | ||
| Long-Term investment, at fair value | |||
| Property, Plant, and Equipment (at cost): | |||
| Land | $ | ||
| Building | $ | ||
| Machinery and equipment | |||
| Total | |||
| Less: Accumulated depreciation | |||
| Total property, plant, and equipment | |||
| Intangible Asset: | |||
| Goodwill | |||
| Other Assets: | |||
| Cash restricted for building purposes | $ | ||
| Officer's note receivable | |||
| Land held for future building site | |||
| Total Assets | $ | ||
| Liabilities | |||
| Current Liabilities: | |||
| Accounts payable | $ | ||
| Current installments of long-term debt | |||
| Lawsuit liability | |||
| Income taxes payable | |||
| Deferred tax liability | |||
| Total current liabilities | $ | ||
| Long-Term Debt: | |||
| Mortgage payable | $ | ||
| Notes payable | |||
| Deferred tax liability | |||
| Total long-term debt | |||
| Total Liabilities | $ | ||
| Shareholders' Equity | |||
| Contributed Capital: | |||
| Common stock, $50 par value | $ | ||
| Additional paid-in capital | |||
| Total paid-in capital | $ | ||
| Retained earnings | |||
| Accumulated Other Comprehensive Loss: | |||
| Unrealized decrease in value of long-term investment | |||
| Total | $ | ||
| Less: Cost of treasury stock | |||
| Total Shareholders' Equity | |||
| Total Liabilities and Shareholders' Equity | $ | ||
