【正文】 sury stock 58,005 Cash 58,005 Purchase treasury stock for $ 180。 respectively. Common stock 15 Paidin capital 37,485 Retained earnings 20,505 Cash 58,0051042 (15 min.) Amounts are in millions except per share amounts and percentage.1. Book value per mon share = (Total stockholders’ equity – Book value of preferred stock) 247。 189。 [($18,400 – $4,400) + ($20,000 – $4,400)] = $2,000 247。 Average number of shares outstanding = $2,000 247。 Common earnings per share = $.20 247。 4,000 = $Note that the book value is lower than the market value. This is typical. The shareholders are paying for earning power rather than for assets. 1044 (15–25 min.) The dividends payable item is not part of stockholders’ equity.ROSELLI CORPORATIONStatement of Stockholders’ EquityDecember 31, 20X86% cumulative preferred stock, $40 par value, callable at $42, authorized 100,000 shares, issued and outstanding,100,000 shares $4,000,000Common stock, $ par value, authorized million shares, issued million shares of which 60,000 shares are in the treasury 3,000,000Additional paidin capital: Preferred $1,000,000 Common 9,000,000 10,000,000*Retained earnings 12,000,000 Subtotal $29,000,000Deduct: Cost of 60,000 shares of mon stock reacquired and held in treasury (4,000,000)Total stockholders’ equity $25,000,000* Many presentations would not show the detailed breakdown of par value and additional paidin capital for preferred and mon stocks. Preferred stock would be shown as the sum of par and additional paidin capital of $5,000,000. Similarly, mon would be $12,000,000.1045 (10–15 min.) You may wish to use a balance sheet equation to show the overall effects of each item. 1. 0 5. 0 8. – $1,000 2. 0 6. – $50,000 9. + $1,200 3. + $600,000 7. 0 10. + $ 800 4. 01046 (15 min.)1. 20X7 and 20X8 preferred dividends must be paid before any mon dividends can be paid. Dividends are not paid on treasury stock. Preferred dividends = .06 $10 (52,136 – 11,528) 2 = $48,730 Common dividends = $.04 (1,322,850 – 93,091) = $49,190 Retained earnings 48,730 Cash 48,730 To record the declaration and payment of preferred dividends for 20X7 and 20X8. Retained earnings 49,190 Cash 49,190 To record the declaration and payment of mon dividends of $.04 per share.2. Ending balance = Beginning balance + Net ine – Dividends = $2,463,951 + $400,000 – $48,730 – $49,190 = $2,766,031Retained Earnings48,730Balance 2,463,95149,190 400,000Balance2, 766,0311047 (15–20 min.)1. Note that a dividend reinvestment is not the same as a typical stock dividend. Retained earnings 2,480,000,000 Dividends payable 2,480,000,000 Declaration of dividends, $.40 6,200,000,000 shares. Dividends payable 2,480,000,000 Cash 2,232,000,000 Common stock 248,000,000 To record payment of cash (90% of $2,480,000,000) and issuance of 4,960,000 additional shares under automatic dividend reinvestment program. Amount of reinvestment: 10% ($2,480,000,000) $248,000,000 Price per share 247。 mon stock at $25 per share. The par value is $4 per share. Cash 5,000Dividend ine 5,000 To record receipt of cash dividends at $1 per share. Stock dividends: No journal entry, but a memorandum 。 420,000 shares = $.First, note that individual shareholders receive no assets from the corporation. Moreover, their fractional interests are unchanged。 Market price per share of mon stock = $.20 247。 Earnings per share of mon stock = $ 247。 ($14,000 + $15,600) = $2,000 247。 100 = %3.Beginning retained earnings+Net ine–Preferred dividends–Common dividends=Ending retained earnings $ + $12 – $ – Common dividends = $69 Common dividends = $7 Using a Taccount, let X = Common dividends Retained EarningsBalance X12Balance69 X = $71043 (10 min.) Dollar amounts (except per share amount) are in thousands.Rate of return on mon equity = (Net ine – Preferred dividends) Average of (Total stockholders’ equity – Liquidating value of preferred stock) = ($2,400 – $400) 247。 2 = $2. Rate of return on mon equity = (Net ine – Preferred dividends) 247。 ($ – $.01) 1,500 = 37,485。77 = 165。 Preferred Dividends 165。 – 165。62 par value shares issued at 165。 they buy them from other investors in the market. Thus, what a shareholder pays is often quite different from his or her share of stockholders’ equity (book value per share). An individual investor’s return is best measured by dividends plus price increase divided by the price paid for the shares.1025 A mon stock with a market price of less than book value may not necessarily be an attractive investment. The forecasted earnings of the pany may be too low to justify a higher market price. The book value may not recognize a large contingent liability from a law suit. For example, a major uncertainty for tobacco panies relates to the possibility that lawsuits by former smokers will be successful. While the risk is real, the oute is far too uncertain to record on the books. Further, book value includes the original costs of assets, which may be far below or above their current values.1026 This is a reasonable argument if panies were allowed to repurchase shares without investors knowing what they were doing. However, in the United States, panies must announce programs to repurchase shares and are restricted from trading around the time of certain information events such as earnings releases. So, as long as the pany announces that they will be repurchasing before doing so, it does not seem there is much of a proble