Below is the common equity section (in millions) of Timeless Technology's last two year-end balance sheets:
2013
2012
Common stock $2,000
$1,000
Retained earnings 2,000
2,340
Total common equity $4,000
$3,340
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The firm has never paid a dividend to its common stockholders. Which of the following statements is CORRECT?
a. The company's net income in 2013 was higher than in 2012.
b. The market price of the firm's stock doubled in 2013.
c. The firm issued common stock in 2013.
d. The firm had positive net income in both 2012 and 2013, but its net income in 2013 was lower than it was in 2012.
e. The company has more equity than debt on its balance sheet.
Below is the common equity section (in millions) of Timeless Technology's last two year-end balance sheets:
| 2013 | 2012 | |
| Common stock | $2,000 | $1,000 |
| Retained earnings | 2,000 | 2,340 |
| Total common equity | $4,000 | $3,340 |
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The firm has never paid a dividend to its common stockholders. Which of the following statements is CORRECT?
| a. | The company's net income in 2013 was higher than in 2012. | |
| b. | The market price of the firm's stock doubled in 2013. | |
| c. | The firm issued common stock in 2013. | |
| d. | The firm had positive net income in both 2012 and 2013, but its net income in 2013 was lower than it was in 2012. | |
| e. | The company has more equity than debt on its balance sheet. |
Related questions
Additional funds needed
Morrissey Technologies Inc.'s 2012 financial statements are shown here.
| Morrissey Technologies Inc.: Balance Sheet as of December 31, 2012 | ||||
| Cash | $180,000 | Accounts payable | $360,000 | |
| Receivables | 360,000 | Notes payable | 56,000 | |
| Inventories | 720,000 | Accrued liabilities | 180,000 | |
| Total current assets | $1,260,000 | Total current liabilities | $596,000 | |
| Long-term debt | 100,000 | |||
| Fixed assets | 1,440,000 | Common stock | 1,800,000 | |
| Retained earnings | 204,000 | |||
| Total assets | $2,700,000 | Total liabilities and equity | $2,700,000 | |
| Morrissey Technologies Inc.: Income Statement for December 31, 2012 | |||
| Sales | $3,600,000 | ||
| Operating costs including depreciation | 3,279,720 | ||
| EBIT | $320,280 | ||
| Interest | 20,280 | ||
| EBT | $300,000 | ||
| Taxes (40%) | 120,000 | ||
| Net Income | $180,000 | ||
| Per Share Data: | |||
| Common stock price | $45.00 | ||
| Earnings per share (EPS) | $1.80 | ||
| Dividends per share (DPS) | $1.08 | ||
Suppose that in 2013, sales increase by 15% over 2012 sales. The firm currently has 100,000 shares outstanding. It expects to maintain its 2012 dividend payout ratio and believes that its assets should grow at the same rate as sales. The firm has no excess capacity. However, the firm would like to reduce its Operating costs/Sales ratio to 89.5% and increase its total debt-to-assets ratio to 30%. (It believes that its current debt ratio is too low relative to the industry average.) The firm will raise 30% of 2013 forecasted total debt as notes payable, and it will issue long-term bonds for the remainder. The firm forecasts that its before-tax cost of debt (which includes both short-term and long-term debt) is 12%. Assume that any common stock issuances or repurchases can be made at the firm's current stock price of $45.
- Construct the forecasted financial statements assuming that these changes are made. What are the firm's forecasted notes payable and long-term debt balances? What is the forecasted addition to retained earnings? Round your answers to the nearest cent.
Morrissey Technologies Inc. Pro Forma Income Statement December 31, 2013 2012 2013 Pro Forma Sales $3,600,000 $ Operating costs (includes depreciation) 3,279,720 $ EBIT $320,280 $ Interest expense 20,280 $ EBT $300,000 $ Taxes (40%) 120,000 $ Net Income $180,000 $ Dividends $ $ Addition to RE $ $ Morrissey Technologies Inc. Pro Forma Balance Statement December 31, 2013 2012 2013 Pro Forma Cash $180,000 $ Accounts receivable 360,000 $ Inventories 720,000 $ Fixed assets 1,440,000 $ Total assets $2,700,000 $ Payables + accruals $540,000 $ Short-term bank loans 56,000 $ Total current liabilities $596,000 $ Long-term bonds 100,000 $ Total debt $696,000 $ Common stock 1,800,000 $ Retained earnings 204,000 $ Total common equity $2,004,000 $ Total liab. and equity $2,700,000 $ - If the profit margin remains at 5% and the dividend payout ratio remains at 60%, at what growth rate in sales will the additional financing requirements be exactly zero? In otherwords, what is the firm's sustainable growth rate? (Hint: Set AFN equal to zero and solve for g.) Round your answer to two decimal places.
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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)
