Financial Accounting Questions and Answers

Procter & Gamble (P&G) is one of the largest consumer products companies in the world, famous for such brands as Crest® and Tide®. Financial information for the company for three recent years is as follows: Fiscal Years Ended (in millions) 2009 2008 2007 Net income $11,293 $11,798 $10,063 Preferred dividends $192 $176 $161 Average number of common shares outstanding 2,952 3,081 3,159 a. Determine the earnings per share for fiscal years 2009, 2008, and 2007. Round to the nearest cent. b. Evaluate the growth in earnings per share for the three years in comparison to the growth in net income for the three years. Answer: a. Earnings per Share = Avg.Number of Common Shares Outstanding Net Income − Preferred Dividends  2009 Earnings per Share = 2,952 shares $11,293 − $192  = $3.76 per share  2008 Earnings per Share = 3,081 shares $11,798 − $176  = $3.77 per share  2007 Earnings per Share = 3,159 shares $10,063 − $161  = $3.13 per share b. 2009 2008 2007 ...

Selected transactions completed by Gene’s Boating Corporation during the current fiscal year are as follows: Feb. 10. Split the common stock 3 for 1 and reduced the par from $60 to $20 per share. After the split, there were 300,000 common shares outstanding. May 1. Declared semiannual dividends of $2.00 on 40,000 shares of preferred stock and $0.12 on the common stock payable on June 15. June 15. Paid the cash dividends. Nov. 1. Declared semiannual dividends of $2.00 on the preferred stock and $0.08 on the common stock (before the stock dividend). In addition, a 2% common stock dividend was declared on the common stock outstanding. The fair market value of the common stock is estimated at $28. Dec. 15. Paid the cash dividends and issued the certifi cates for the common stock dividend. Journalize the transactions. Answer: Feb. 10 No entry required. The stockholders’ ledger would be revised to record the increased number of shares held by each stockholder. May 1 Cash Dividends .............

Malen Arts, Inc., had earnings of $133,750 for 2012. The company had 25,000 shares of common stock outstanding during the year. In addition, the company issued 10,000 shares of $100 par value preferred stock on January 3, 2012. The preferred stock has a dividend of $4 per share. There were no transactions in either common or preferred stock during 2012. Determine the basic earnings per share for Malen Arts. Answer: Earnings per Share = Avg.Number of Common Shares Outstanding Net Income − Preferred Dividends Earnings per Share = ( ) 25,000 shares $133,750 − $4 per share × 10,000 shares Earnings per Share = $3.75 per share 

Indicate whether the following actions would (+) increase, (–) decrease, or (0) not affect Indigo Inc.’s total assets, liabilities, and stockholders’ equity: Assets Liabilities Stockholders’ Equity (1) Authorizing and issuing stock certifi cates in a stock split _____________ _____________ _____________ (2) Declaring a stock dividend _____________ _____________ _____________ (3) Issuing stock certifi cates for the stock  dividend declared in (2) _____________ _____________ _____________ (4) Declaring a cash dividend _____________ _____________ _____________ (5) Paying the cash dividend declared in (4) _____________ _____________ _____________ Answer: Stockholders’  Assets Liabilities Equity (1) Authorizing and issuing stock  certificates in a stock split 0 0 0 (2) Declaring a stock dividend 0 0 0 (3) Issuing stock certificates for  the stock dividend declared  in (2) 0 0 0 (4) Declaring a cash dividend 0 + – (5) Paying the cash dividend  declared in (4) – –...

The stockholders’ equity T accounts of Life’s Greeting Cards Inc. for the current fiscal year ended December 31, 2012, are as follows. Prepare a statement of stockholders’ equity for the fiscal year ended December 31, 2012. COMMON STOCK Jan. 1 Balance 3,000,000 Mar. 7 Issued 27,000 shares 1,350,000 Dec. 31 Balance 4,350,000 PAID-IN CAPITAL IN EXCESS OF PAR Jan. 1 Balance 480,000 Mar. 7 Issued 27,000 shares 324,000 Dec. 31 Balance 804,000 TREASURY STOCK Aug. 7 Purchased 4,500 shares 216,000 RETAINED EARNINGS Mar. 31 Dividend 37,500 Jan. 1 Balance 5,220,000 June 30 Dividend 37,500 Dec. 31 Closing (net income) Sept. 30 Dividend 37,500 765,000 Dec. 31 Dividend 37,500 Dec. 31 Balance 5,835,000 Answer: LIFE’S GREETING CARDS INC. Statement of Stockholders’ Equity For the Year Ended December 31, 2012  Paid-In  Common Capital in  Stock Excess Treasury Retained  $50 Par of Par Stock Earnings Total Balance, Jan. 1, 2012...... $3,000,000 $480,000 — $5,220,000 $ 8,700,000 Issued ...

Gino’s Restaurant Corporation wholesales ovens and ranges to restaurants throughout the Midwest. Gino’s Restaurant Corporation, which had 100,000 shares of common stock outstanding, declared a 5-for-1 stock split (4 additional shares for each share issued). a. What will be the number of shares outstanding after the split? b. If the common stock had a market price of $200 per share before the stock split, what would be an approximate market price per share after the split? Answer: a. 500,000 shares (100,000 × 5) b. $40 per share ($200/5)