Chapter 12 Solutions Manual

CHAPTER 12 PROFIT AND CHANGES IN RETAINED EARNINGS
OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL THINKING CASES

Brief Exercises B. Ex. 12.1 B. Ex. 12.2 B. Ex. 12.3 B. Ex. 12.4 B. Ex. 12.5 B. Ex. 12.6 B. Ex. 12.7 B. Ex. 12.8 B. Ex. 12.9 B. Ex. 12.10 Exercises 12.1 12.2 12.3 12.4 12.5 12.6 12.7 12.8 12.9 12.10 12.11 12.12 12.13 12.14 Topic Extraordinary loss Extraordinary gain Discontinued operations Cash and stock dividends Statement of changes in equity Statement of changes in equity Cash dividend journal entries stock dividend journal entries Shareholders' equity section of balance sheet Comprehensive income Topic Stock dividends and share splits Terminology Discontinued operations Extraordinary items Earnings per share: effect of preference share Restating earnings per share for stock dividends Stock dividends and splits Effect of stock dividends on share price Effects of transactions upon financial measurements Effects of transactions upon earnings per share Identifying source of desired financial information Comprehensive income Cash and stock dividends Real World: adidas AG EPS and dividends Learning Objectives 1 1 1 6 5 7,8 6 6 6,8 4 Learning Objectives 6 14, 6-8 1, 2 1, 2 2 2, 6 6 6 8 2, 6 1, 5, 8 4 6 3, 4 Skills Analysis Analysis Analysis Analysis Analysis Analysis Analysis Analysis Analysis Analysis Skills Analysis, communication Analysis Analysis Analysis Analysis Analysis Analysis Communication Analysis Communication Analysis Analysis Analysis, communication, judgment Analysis, communication
The McGraw-Hill Companies, Inc., 2010 Overview
12.15
Real World: adidas AG Analysis of share information
1, 8
Analysis, communication
The McGraw-Hill Companies, Inc., 2010 Overview
Sets A, B 12.1 A,B 12.2 A, B 12.3 A, B 12.4 A, B 12.5 A, B 12.6 A, B 12.7 A, B 12.8 A, B 12.9 A, B
Topic Reporting unusual events Format of statements of income and retained earnings Reporting unusual events: a comprehensive problem Share splits, stock dividends, treasury share, and book value Statement of shareholders equity Dividends and treasury share transactions Effects of transactions upon financial measurements Shareholders equity: comprehensive Format of an income statement
Learning Objectives 1, 2 1, 2, 5, 7 1, 2, 4, 7 6 6, 8 6 8 6 1, 2
Skills Analysis Analysis, communication Analysis, communication Analysis, communication Analysis, communication Analysis Analysis, communication Analysis Analysis
Critical Thinking Cases 12.1 Real World: Hutchison Telecommunications International Limited, Vodafone plc, Cathay Pacific, Shiseido Company, limited Reporting special events Forecasting continuing operations Interpreting earnings per share Analyzing statement of shareholders equity Classifying unusual items Real World: Vodafone plc Analyzing shareholders' equity and EPS
Analysis, communication
12.2 12.3 12.4 12.5 12.6
1 13 8 1, 2, 8 8
Analysis, communication Analysis, communication Analysis, communication Analysis, communication Communication, research, technology Technology
The McGraw-Hill Companies, Inc., 2010 Overview (p.2)
DESCRIPTIONS OF PROBLEMS AND CRITICAL THINKING CASES

Below are brief descriptions of each problem and case. These descriptions are accompanied by the estimated time (in minutes) required for completion and by a difficulty rating. The time estimates assume use of the partially filled-in working papers.
Problems (Sets A and B)

12.1 A,B Greater Asian Airlines/Pacific Airlines Preparation of a condensed income statement and earnings per share figures for a company with a discontinued segment and an extraordinary loss. Emphasizes format of the income statement rather than computation of amounts. Students also are asked to forecast future operating results. Slick Software Limited/Beach Limited A comprehensive problem on reporting the results of operations. Stresses the format of an income statement and statement of changes in equity, with disclosure of unusual items. EPS computation involves ordinary and preference shares outstanding. Phoenix Limited/Dexter Limited Given an incorrectly prepared income statement, student is asked to draft a revised income statement and a statement of changes in equity. Includes discontinued operations, an extraordinary item, an accounting change, and a prior period adjustment. Albers Limited/Jessel Limited Demonstrates the effect of various transactions upon total shareholders equity, number of shares outstanding, and book value per share. Includes share splits, stock dividends, and treasury share transactions. Strait Corporation/ Dry Wall Limited Preparation of a statement of shareholders equity. Stresses an understanding of the effects of various transactions upon the elements of shareholders equity. Thompson Service/Greene Limited A comprehensive problem on cash dividends, stock dividends, and treasury share transactions. Requires journal entries and preparation of shareholders equity section of the balance sheet. Student is asked to compute maximum amount available for dividends. Tech Process Limited/Hot Water Limited Explanation of the effects of equity transactions on various financial measures. 30 Easy
12.2 A,B
30 Medium
12.3 A,B
35 Strong
12.4 A,B
20 Easy
12.5 A,B
20 Medium
12.6 A,B
40 Strong
12.7 A,B
30 Strong
The McGraw-Hill Companies, Inc., 2010 Description Problems
Problems (cont'd)
12.8 A,B Mandella Corporation/Adams Corporation Preparation of the shareholders equity section of a balance sheet in two successive years. Transactions affecting shareholders equity include issuance of ordinary share, a stock dividend, purchase and sale of treasury share, cash dividends, and a share split. Esper Corporation/Blue Jay Manufacturing Corp. Preparation of a partial income statement for Esper Corp., including discontinued operations, an extraordinary loss, and an accounting change. Emphasizes format of the income statement rather than computation of amounts. Students also are asked to compute earnings per share. 50 Strong
12.9 A,B
25 Strong
Critical Thinking Cases

12.1 What's This? Four unusual events taken from the published financial statements of well-known corporations. Students are asked to indicate whether each event qualifies as an extraordinary item, a discontinued operation, or an accounting change. Is There Life Without Baseball? Student is presented with an income statement containing discontinued operations and an extraordinary item and is asked to forecast future earnings. Requires an understanding of recurring versus nonrecurring events. Good practice for interpreting annual reports. Using Earnings Per Share Statistics Student is given six earnings per share figures, including earnings from continuing operations, earnings before extraordinary items, and net earnings, computed on both a basic and diluted basis. From this information, student is asked to determine the amount of the extraordinary loss, to use a p/e ratio to estimate share price, and to forecast future performance. Interpreting a Statement of Shareholders' Equity Student is asked to answer specific questions requiring analysis and understanding of items reported in the statement of shareholders' equity. Classification of Unusual Items - and the Potential Financial Impact Students discuss the classification of unusual items from several perspectivesaccounting principles, pressures on management, cash flows, and probable effects on share price. Adapted from an actual case; illustrates the real world aspects of financial reporting. Good group assignment. 20 Easy
12.2
20 Medium
12.3
30 Strong
12.4
35 Strong
12.5
60 Strong
The McGraw-Hill Companies, Inc., 2010 Desc. of Cases
Critical Thinking Cases (cont'd).
12.6
Comparing Price-Earnings Ratios Internet Students are to obtain information on the Internet about a Fortune 500 company and an emerging company. They are to compare p/e ratios and speculate on the reasons for the differences.
30 Easy
The McGraw-Hill Companies, Inc., 2010 Desc. of Cases (p.2)
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

1. The purpose of presenting subtotals such as Profit from Continuing Operations and Profit from Discontinued Operations is to assist users of the income statement in making forecasts of future earnings. By excluding the operating results of discontinued operations and the effects of unusual and nonrecurring transactions, these subtotals indicate the amount of income derived from the companys ongoing, normal operations. 2. The discontinued operations classification is used in the income statement only when a business discontinues an entire segment of its activities. Franks has two business segmentspizza parlors and the baseball team. Only if one of these segments is discontinued in its entirety will the company report discontinued operations. The sale or closure of a few parlors does not represent the disposal of the pizza parlor segment of the companys business activities. 3. Extraordinary items are defined as 'income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and therefore are not expected to recur frequently or regularly'. According IAS 1 paragraph 85, "An entity shall not present any items of income and expense as extraordinary items, either on the face of the income statement or in the notes." It is because items treated as extraordinary result from the normal business risks faced by an entity and do not warrant presentation in a separate component of the income statement. The nature or function of a transaction rather than frequency, should determine its presentation within the income statement. Items currently classified as 'extraordinary' are only a subset of the items of income and expense that may warrant disclosure to assist users in predicting an entity's future performance. 4. The restructuring charges should be combined and presented as a line item in the companys income statement in determining operating income. In predicting future earnings for the company, the charges generally should not be considered to be costs that will be incurred in the future. In fact, if the program of downsizing is successful, operating results in the future could be expected to improve as a result of having incurred the restructuring charges. 5. A material error represents a correction of an error in the amount of income reported in a prior period. A material error are shown in the statement of changes in equity (or statement of shareholders equity) as an adjustment to the balance of retained earnings at the beginning of the period in which the error is identified. 6. Irregular income items, such as discontinued operations, and material error, are legitimate parts of the earnings history of a company. On the other hand, they are non-recurring and should not carry the same weight in evaluating future profitability as normal, recurring operating revenues and expenses. 7. a. The current-year preference share dividend is deducted from profit to determine the earnings allocable to the ordinary shareholders. (the preference share dividend is deducted only if declared.)
The McGraw-Hill Companies, Inc., 2010 Q1-7
b.
The par value of all preference share outstanding and the amount of all dividends in arrears on preference share are deducted from total shareholders equity to determine the aggregate book value allocable to the ordinary shareholders.
8. No, the number of ordinary shares used in computing earnings per share may be different from that used to determine book value per share. In computing earnings per share, earnings allocable to the ordinary shareholders is divided by the weighted-average number of ordinary shares outstanding throughout the period. In computing book value per share at a specified date, shareholders' equity allocable to the ordinary shareholders is divided by the number of ordinary shares actually outstanding on that date. If the number of ordinary shares outstanding has not changed during the period, the weighted-average number of ordinary shares outstanding during the period will be equal to the number of ordinary shares outstanding on a particular date. 9. a. b. The price-earnings ratio is computed by dividing the market price of a share of ordinary share by the annual earnings per share. The amount of basic earnings per share is computed by dividing the profit available for ordinary share by the weighted-average number of ordinary shares outstanding during the year. The amount of diluted earnings per share is computed by dividing profit by the maximum potential number of shares outstanding after convertible securities are assumed to have been converted. Shares used in computing basic earnings per share: Ordinary shares outstanding throughout the year . 3,000,000
c.
10. a. b.
Shares used in computing diluted earnings per share: Ordinary shares outstanding throughout the year . 3,000,000 Additional ordinary shares that would exist if preference share had been converted at the beginning of the year (150,000 x 2) .. 300,000 Total shares used in diluted earnings computation . 3,300,000
11. The analyst should recognize the risk that the outstanding convertible securities may be converted into additional ordinary share, thereby diluting (reducing) basic earnings per share in future years. If any of the convertible securities are converted, basic earnings per share probably will increase at a slower rate than profit. In fact, if enough dilution occurs, basic earnings per share could actually decline while profit continues to increase. 12. Date of declaration is the day the obligation to pay a dividend comes into existence by action of the board of directors. Date of record is the day on which the particular shareholders who are entitled to receive a dividend is determined. Persons listed in the corporate records as owning share on this day will receive the dividend. Date of payment is the day the dividend is distributed by the corporation. Ex-dividend date (usually three business days prior to the date of record) is the day on which the right to receive a recently declared dividend no longer attaches to share. As a result, the market price of the shares usually falls by the amount of the dividend. 13. The purpose of a stock dividend is to make a distribution of perceived value to shareholders as a representation of the profitability of the company while, at the same time, conserving cash.
14. A share split occurs when there is a relatively large increase in the number of shares issued without any change in the total amount of stated capital (because the par value per share is reduced proportionately to the increase in the number of shares). A stock dividend occurs when there is a relatively small increase in the number of shares issued, with no change in the net assets of the company but a transfer from retained earnings to the issued and paid capital section of the balance sheet. The par value of share remains the same. The distinction in the accounting treatment of a stock dividend and a share split stems directly from the difference in the effect on stated (legal) capital and retained earnings. There is no difference in the probable effect on per-share market price of a stock dividend and a share split of equal size, although share splits are usually much larger than stock dividends. 15. Restructuring charges result when the company incurs costs in the process of reorganization, often downsizing. The purpose of reorganization is to benefit future operations in terms of more efficient operations, but the cost is ordinarily charged to current operations. Restructuring charges are not extraordinary items, and unless they directly related to a discontinued part of the business, are not presented as discontinued operations. They are often presented as a single line item in the income statement, before income taxes. 16. Three items that may be shown in a statement of comprehensive income as causing changes in the balance of retained earnings are: (1) Profit or loss for the period (2) Dividends declared (both cash dividends and stock dividends) (3) Gains or losses arising from the fair value changes of Available For Sale investments 17. If the price of the share declines in proportion to the distribution of shares in a stock dividend, at the time of that distribution the shareholder does not benefit. He/she holds exactly the same percentage of the outstanding shares, and the value per share has declined in proportion to the increased number of shares. Often, however, the value does not drop in proportion to the increased number of shares, meaning that the recipient of the shares has an immediate benefit. For example, if an investor who held 2,000 share that had a market value of $10 each received a 10% stock dividend, and the market price only declined 5%, the following would result:
Market value before stock dividend: 2,000 shares @ $10 . Market value after stock dividend: (2,000 shares x 110%) x ($10 x 95%) .
$20,000 $20,900
The investor has benefited by $900. He/she could sell about 95 shares [$900/($10 x 95%)] at $9.50 and still have a share investment equal to the value before the stock dividend, although the investor would own a smaller percentage of the company after the sale. 18. A liquidating dividend is a return of the investment made in the company to the investor, in contrast to a non-liquidating dividend which is a return on the investment in the company. A liquidating dividend occurs when dividends are distributed in excess of a companys retained earnings.
19. The student is right in one senseboth share splits and stock dividends are distributions of a companys shares to existing shareholders with the company receiving no payment in return. The student is incorrect, however, in stating that the two are exactly the same. The primary difference is one of magnitude and, thus, the impact on market value. A stock dividend is usually relatively small5% to 20% of the outstanding shares. A share split, on the other hand, is usually some multiple of the number of outstanding shares, like a 2:1 split (100% increase) or a 3:1 split (200% increase). The market price reacts strongly to a distribution as large as a share split while stock dividends are often unnoticed in the share price.
SOLUTIONS TO BRIEF EXERCISES

B.Ex. 12.1 FELLUPS LIMITED Partial Income Statement For year ended _______________ Profit from continuing operations $75,000
Loss from discontinued operations, net of $40,000 income taxes Profit .
(60,000) $15,000
B.Ex. 12.2
WALKER COMPANY Income Statement For year ended _______________ Revenues Expenses Operating Profit Other non-operating profit Profit $1,500,000 1,200,000 $300,000 149,500 $449,500
IFRS does not allow the presentation of extraordinary item in the financial statements
B.Ex. 12.3
WABASH LIMITED Income Statement For year ended _______________ Revenues Expenses Income from continuing operations Discontinued operations: Operating income from discontinued operations, net of $10,000 income taxes Loss on the sale of discontinued operations, net of $22,000 income tax benefit Profit $480,000 430,000 $50,000
$15,000 33,000 ($18,000) $32,000
B.Ex. 12.4
Number of ordinary shares outstanding after stock dividend:
The McGraw-Hill Companies, Inc., 2010 BE12.1,2,3,4
100,000 shares x 110% = 110,000 Cash required to pay $.50 per stock dividend: 110,000 shares x $.50 = $55,000
The McGraw-Hill Companies, Inc., 2010 BE12.1,2,3,4
B.Ex. 12.5
MESSER COMPANY Statement of Comprehensive Income For year ended _______________
Profit for the year Other comprehensive income: Gain on fair value changes of available for sale investments Total comprehensive income
B.Ex. 12.6
SALT & PEPPER LIMITED Statement of Changes in Equity For year ended _______________ Share capital, beginning of the year Retained earnings, beginning of year Corrections of error in prior year's financial statements Shareholders' Equity, beginning of year, as restated Add: Profit Deduct: Preference share dividends Ordinary dividends Shareholders' Equity, end of year *10,000 shares $1 x 2 years = $20,000 **200,000 shares x $.50 = $100,000 $20,000* 100,000**
B.Ex. 12.7
Cash dividend on preference share: 100,000 shares x $100 par x 6% Cash dividend on ordinary share: 750,000 shares x $.75 Total dividends Journal entries to record declaration and payment of cash dividends:
Retained earnings Dividends payable.. To record dividends declared on preference and ordinary shares. Dividends payable.
1,162,500
1,162,500
The McGraw-Hill Companies, Inc., 2010 BE12.5,6,7
Cash. To record payment of dividends.
ncome ____
88,000 25,000 $113,000
D uity ____ $100,000 $460,000 (65,000) $495,000 250,000 $745,000 120,000 $625,000
$600,000 562,500 $1,162,500
1,162,500
1,162,500
B.Ex. 12.8
Retained earnings Stock dividend to be distributed. Share premium To record declaration of stock dividend. *500,000 shares x 5% x $15 = $375,000 **500,000 shares x 5% x $10 = $250,000 ***500,000 shares x 5% x ($15 - $10) = $125,000 Stock dividend to be distributed Ordinary shares To record distribution of stock dividend.
375,000* 250,000 ** 125,000 ***
250,000 250,000
B.Ex. 12.9
ALEXANDER LIMITED Shareholders' Equity Section of Balance Sheet (Date) Ordinary share, 770,000 shares, $5 par value Share premium on ordinary shares Retained earnings Total shareholders' equity *700,000 shares x 1.10 x $5 = $3,850,000 **700,000 shares x ($8 - $5) + 70,000 shares x ($12 - 5) = $2,100,000 + $490,000 = $2,590,000 ***$995,000 - (70,000 shares x $12) = $155,000 $3,850,000 * 2,590,000 ** $6,440,000 155,000 *** $6,595,000
B.Ex. 12.10
CRASHER COMPANY Statement of Comprehensive Income For year ended _______________ Profit for the year Other comprehensive income: Gain on the fair value changes of available for sale investments Total comprehensive income $500,000
20,000 $520,000
SOLUTIONS TO EXERCISES
Ex. 12.1 a. 1,440 shares = [(200 x 2) x 120%] x 3 $17,280 = 1,440 x $12. b. Since Smiley is a small and growing corporation, the board of directors probably decided that cash from operations was needed to finance the companys expanding operations. c. You are probably better off because of the boards decision not to declare cash dividends. Smiley was obviously able to invest the funds to earn a high rate of return, as evidenced by the value of your investment, which has grown from $1,000 to $17,280. Ex. 12.2 a. None (Treasury share is not an asset; it represents shares that have been reacquired by the company, not shares that have not yet been issued.) b. Stock dividend c. Share premium d. Retrospective restatement e. P/e ratio (Market price divided by earnings per ordinary share.) f. Discontinued operations (Showing the discontinued operations in a separate section of the income statement permits presentation of the subtotal, Income from Continuing Operations.) g. Diluted earnings per share h. Total comprehensive income
Ex. 12.3
a.
SPORTS LIMITED Income Statement For the Year Ended December 31, 20__ Sales .. Costs and expenses (including applicable income tax) Profit from continuing operations Discontinued operations: Operating loss from tennis shops (net of income tax benefit) .. $192,000 Loss on sale of tennis shops (net of income tax benefit) 348,000 Profit . Earnings per share:
Earnings from continuing operations ($3,900,000 182,000 shares)
$12,500,000 8,600,000 $3,900,000
(540,000) $3,360,000 $21.43 (2.97) $18.46
Loss from discontinued operations ($540,000 182,000) . Net earnings ($3,360,000 182,000 shares) ..
The McGraw-Hill Companies, Inc., 2010 E12.1,2,3
b. The $21.43 earnings per share figure from continuing operations (part a) is probably the most usefu predicting future operating results for Sports Limited Earnings per share from continuing operatio results of continuing and ordinary business activity, which is expected to continue in the future. Disc operations and extraordinary items are not likely to recur in the future.
Ex. 12.4
a.
GLOBAL EXPORTS Income Statement For the Year Ended December 31, 20__ Net sales . Less: Costs and expenses (including income tax) . Profit from continuing operations . Gain on disposal of discontinued operations, net of income tax Profit .. Earnings per share of ordinary share:
b. The $1.70 earnings per share before continuing operations is the figure used to compute the price-ea Global Exports. If a company reports a gain or loss resulting from discontinued operations, the pric computed using the per-share earnings before discountinued item.
Ex. 12.5
a.
1.
2.
b. The earnings per share figure computed in part a (2) is a basic EPS figure. Although the company h ordinary and preference share, the preference share must be convertible into ordinary share in orde diluted computation of earnings per share. The potential conversion of preference share into ordina necessitates disclosure of diluted EPS. Because the preference share in this exercise is not convertibl computation is basic.
The McGraw-Hill Companies, Inc., 2010 E12.4,5
The $21.43 earnings per share figure from continuing operations (part a) is probably the most useful one for predicting future operating results for Sports Limited Earnings per share from continuing operations represents the results of continuing and ordinary business activity, which is expected to continue in the future. Discontinued operations and extraordinary items are not likely to recur in the future.
GLOBAL EXPORTS Income Statement For the Year Ended December 31, 20__ Net sales . Less: Costs and expenses (including income tax) . Profit from continuing operations . Gain on disposal of discontinued operations, net of income tax Profit .. Earnings per share of ordinary share:
Earnings from continuing operations ($1,550,000 910,000 shares) ..
Earnings arising from the disposal of discontinued operations ($420,000 910,000 shares) Net earnings ($1,970,000 910,000 shares) The $1.70 earnings per share before continuing operations is the figure used to compute the price-earnings ratio for Global Exports. If a company reports a gain or loss resulting from discontinued operations, the price-earnings ratio is computed using the per-share earnings before discountinued item.
Profit (all applicable to ordinary shares) Ordinary shares outstanding throughout the year .. Earnings per share ($1,920,000 400,000 shares) .. Profit .. Less: Preference share dividend (100,000 x 8% x $100) . Earnings available for ordinary share . Ordinary shares outstanding throughout the year .. Earnings per share ($1,120,000 300,000 shares) The earnings per share figure computed in part a (2) is a basic EPS figure. Although the company has outstanding both ordinary and preference share, the preference share must be convertible into ordinary share in order to result in a diluted computation of earnings per share. The potential conversion of preference share into ordinary share is what necessitates disclosure of diluted EPS. Because the preference share in this exercise is not convertible, the EPS computation is basic.
most useful one for operations represents the ure. Discontinued
$7,750,000 6,200,000 1,550,000 420,000 $1,970,000 $1.70 0.46 $2.16 price-earnings ratio for the price-earnings ratio is
$1,920,000 400,000 $4.80 $1,920,000 800,000 $1,120,000 300,000 $3.73
mpany has outstanding both e in order to result in a o ordinary share is what onvertible, the EPS
Ex. 12.6
a.
2009 2008 Earnings per share . $1.88 $1.575 (1) (1) $3.15 originally reported, divided by 2 (twice as many shares) (2) $2.40 originally reported, divided by 2
2007 $1.20 (2)
b.
Following the stock dividend, the earnings per share of earlier periods should be retroactively restated to reflect the increased number of shares. In this situation, each "new share (after the 100% stock dividend) is equal to only one-half of a 2008 or 2007 share. If the earnings of each 2008 or 2007 share are allocated between the two new shares, each new share is viewed as having earned one-half of the original amount ($3.15 2 = $1.575; $2.40 2 = $1.20). Apr. 30 Memorandum: Issued an additional 1,000,000 shares in a 2-for-1 share split. Par value reduced from $1 per share to $0.50 per share. June 1 Dividends . 1,200,000 Dividends Payable . To record the declaration of a dividend of 60 cents per share on 2 million share outstanding. 1 Dividends Payable . 1,200,000 Cash .. To record payment of the dividend declared on June 1. 1 Retained Earnings 1,900,000 Stock Dividend to Be Distributed . Share Premium: Stock Dividends To record declaration of a 5% stock dividend consisting of 100,000 shares (2,000,000 shares x 5%) of $0.50 par value ordinary share. Amount of retained earnings transferred to equity is based on market price of $19 a share.
Ex. 12.7
a.
1,200,000
July
1,200,000
Aug.
50,000 1,850,000
Sept. 10 Stock Dividend to Be Distributed 50,000 Ordinary Shares . To record distribution of a stock dividend of 100,000 shares. b. c. d. 2,100,000 shares 1,000,000 + 1,000,000 + 100,000
50,000
$0.50 par value per share ($1 par reduced to $0.50 par due to 2-for-1 share split on April 30.) Share splitNo effect Declaration/payment of cash dividendDecrease retained earnings Declaration/distribution of stock dividendNo effect
Ex. 12.8
The market value of the total Express Limiteds shares outstanding is $5,280,000 (80,000 $66) before the stock dividend. Because the issuance of new shares has no effect on the net assets of the company, there is no basis of predicting any change in total market value of the companys share as a result of the stock dividend. The logical conclusion is, therefore, that the market price per share should fall to $60 ($5,280,000 88,000 shares). The fact that this exact result does not always follow in practice must be attributed to a lack of understanding on the part of the investing public and to other factors affecting per-share market price at the time of a stock dividend. Current Assets D NE NE D I Shareholders Equity D NE NE D I Net Cash Flow (from Any Source) D NE NE D I
Ex. 12.9 Event a b c d e Ex. 12.10 a. Profit NE NE NE NE NE
After a share split, earnings per share are expressed in terms of the new shares. Therefore, a 3-for-1 share split will cause earnings per share figures to be restated at one-third of their former amounts.
b. Realization of a gain from most sources, including discontinued operations, increases net earnings per share. (As this gain relates to discontinued operations, however, it would not increase the per-share earnings from continuing operations. ) c. Dividends declared or paid do not enter into the determination of profit. Therefore, the declaration and/or payment of a cash dividend on ordinary share has no effect upon earnings per share.
d. Earnings per share are restated to reflect the increased number of shares resulting from a stock dividend. Therefore, a stock dividend causes a proportionate reduction in the earnings per share reported in past periods, as well as in the current period. (This effect parallels that of a share split, only smaller.) e. Acquisition of treasury shares reduces the weighted average number of shares currently outstanding and, therefore, increases earnings per share.
The McGraw-Hill Companies, Inc., 2010 E12.8,9,10
Ex. 12.11
a. b. c. d. e. f. g.
Balance sheet. Statement of Changes in Equity This information is not included in any formal financial statementit is quoted daily in publications such as The Financial Times. Statement of Changes in Equity Statement of Changes in Equity and/or notes to financial statements. Income statement. This information may be reported in the annual report, but it is not a required disclosure in any formal financial statement. It is also reported by investors services. This information may be included in the annual report, but it is not a required disclosure in financial statements. It is reported by investors services and in the financial pages of most newspapers. Statement of Changes in Equity, and statement of cash flows. Revenues . Expenses . Profit before income tax . Income tax* . Profit .. *$290,000 x 35%
h.
i. Ex. 12.12 a.
b.
Profit for the year Other comprehensive income: Gains arising from the fair value changes of available-for-sale investments* Total comprehensive income . * $19,200 - $17,500 = $1,700 gain $1,700 - ($1,700 x 35% income tax) = $1,105 gains.
ance sheet.
ement of Changes in Equity
information is not included in any formal financial statementit is quoted daily in ications such as The Financial Times.
ement of Changes in Equity
ement of Changes in Equity and/or notes to financial statements.
me statement.
information may be reported in the annual report, but it is not a required disclosure in any mal financial statement. It is also reported by investors services.
information may be included in the annual report, but it is not a required disclosure in ncial statements. It is reported by investors services and in the financial pages of most spapers.
ement of Changes in Equity, and statement of cash flows. $572,000 282,000 $290,000 101,500 $188,500
enues . enses . it before income tax . me tax* . it ..
90,000 x 35%
it for the year $188,500 er comprehensive income: Gains arising from the fair value changes of available-for-sale investments* 1,105 al comprehensive income . $189,605
9,200 - $17,500 = $1,700 gain 00 - ($1,700 x 35% income tax) = $1,105 gains.
c.
Profit is unchanged.
Profit for the year . Other comprehensive income: Loss arising from the Fair Value Changes of available-for-sale investments* Comprehensive income * $17,500 - $14,200 = $3,300 loss $3,300 - ($3,300 x 35% income tax benefit) = $2,145 loss
Ex. 12.13
a.
10% stock dividend: 500,000 shares x 1.10 = 550,000 shares 2:1 share split: 550,000 x 2 = 1,100,000 shares Note: The cash dividends do not affect the number of outstanding shares.
b.
$1 cash dividend: 550,000 shares x $1 = $550,000 $.60 cash dividend: 1,100,000 shares x $.60 = $660,000 Total cash paid: $550,000 + $660,000 = $1,210,000 Note: No cash is paid out with a stock dividend or a share split.
c.
220 shares [(100 shares x 1.10) x 2] Market value of portfolio before the four transactions: 100 shares x $65 = $6,500 Market value of portfolio after the four transactions: 220 shares x $40 = $8,800
Your portfolio after the four transactions is $8,800 compared to $6,500 before the four transactions addition, you would have received cash dividends, as follows: (100 shares x 1.10 x $1) + (110 shares x 2 x $.60) = $110 + $132 = $242 Ex. 12.14 a.
adidas AG seems to be an aggressive company. It is constantly acquiring or introducing new brand and products and making extensive promotion plan, that requires large amounts of capital. The company retains the majority of its earnings in order to have the capital available to take advantag its growth opportunities and to constantly introducing new brands and products for its growing business.
b.
Based on information in the Case-in-Point in this chapter, unless you have an extreme need for cash you should probably be pleased that adidas AG retains its earnings rather than paying them to you the form of higher dividends. The company is doing well investing its earnings, probably better tha you could do as an individual investor with the additional dividends you would receive if the compa paid higher dividends.
fit is unchanged.
fit for the year . $ 188,500 her comprehensive income: Loss arising from the Fair Value Changes of available-for-sale investments* . (2,145) mprehensive income $186,355
17,500 - $14,200 = $3,300 loss 300 - ($3,300 x 35% income tax benefit) = $2,145 loss
% stock dividend: 500,000 shares x 1.10 = 550,000 shares share split: 550,000 x 2 = 1,100,000 shares
e: The cash dividends do not affect the number of outstanding shares.
cash dividend: 550,000 shares x $1 = $550,000 0 cash dividend: 1,100,000 shares x $.60 = $660,000 al cash paid: $550,000 + $660,000 = $1,210,000
e: No cash is paid out with a stock dividend or a share split.
shares [(100 shares x 1.10) x 2] rket value of portfolio before the four transactions: 100 shares x $65 = $6,500
rket value of portfolio after the four transactions: 220 shares x $40 = $8,800
ur portfolio after the four transactions is $8,800 compared to $6,500 before the four transactions. In dition, you would have received cash dividends, as follows:
100 shares x 1.10 x $1) + (110 shares x 2 x $.60) = $110 + $132 = $242
das AG seems to be an aggressive company. It is constantly acquiring or introducing new brands d products and making extensive promotion plan, that requires large amounts of capital. The mpany retains the majority of its earnings in order to have the capital available to take advantage of growth opportunities and to constantly introducing new brands and products for its growing iness.
ed on information in the Case-in-Point in this chapter, unless you have an extreme need for cash, should probably be pleased that adidas AG retains its earnings rather than paying them to you in form of higher dividends. The company is doing well investing its earnings, probably better than could do as an individual investor with the additional dividends you would receive if the company d higher dividends.
Ex. 12.15
a.
adidas AG did not report any irregular items for the year 2008 and 2009.
b.
adidas AG seems to have one kind of share in its capital structure. 209 million share capital had been issued. No information is available for its par value and authorized capital. Indeed, note 26 of adidas AG (not enclosed) shows adidas' share having no par value. During the two years presented, adidas AG repurchased shares in 2007 (with a decrease in share capital of 10 million and capital reserves of 399 million) and issued share for the conversion of convertiable bond (with an increase in share capital of 16 million and in capital reserves of 384 million).
c.
The McGraw-Hill Companies, Inc., 2010 E12.15
30 Minutes, Easy a.
SOLUTIONS TO PROBLEMS SET A PROBLEM 12.1A GREATER ASIAN AIRLINES

GREATER ASIAN AIRLINES Income Statement For the Year Ended December 31, 20__
Sales Costs and expenses (including income taxes on continuing operations) Profit from continuing operations Discontinued operations: Operating profit from motels (net of income tax) Gain on sale of motels (net of income tax) Profit
864,000 4,956,000
Earnings per share of ordinary share: Earnings from continuing operations ($11,800,000 1,000,000 shares) Profit from discontinued operations ($5,820,000 1,000,000 shares) Profit ($17,620,000 1,000,000 shares)
b.
Estimated net earnings per share next year: Earnings per share from continuing operations Estimated decrease ($11.80 x 5%) Estimated net earnings per share next year The profitability of the motels is not relevant, as these motels are no longer owned by Greater Asian Airlines.
The McGraw-Hill Companies, Inc., 2010 P12.1A
O PROBLEMS SET A PROBLEM 12.1A ER ASIAN AIRLINES
_ $ 55,120,000 43,320,000 11,800,000 5,820,000 17,620,000
11.80 5.82
17.62
$ $
11.80 (0.59) 11.21
30 Minutes, Medium a.
PROBLEM 12.2A SLICK SOFTWARE LIMITED

SLICK SOFTWARE LIMITED Condensed Income Statement For the Year Ended December 31, 2009
Sales Costs and expenses (including applicable income taxes) Profit from continuing operations Discontinued operations: Operating profit (net of income tax) Loss on disposal (net of income tax benefit) Profit
$ $ $ 140,000 (550,000) $
19,850,000 16,900,000 2,950,000
(410,000) 2,540,000
Earnings per share: Earnings from continuing operations [($2,950,000 - $500,000*) 200,000 shares]
Loss from discontinued operations ($410,000 200,000 shares) Net earnings [($2,540,000 - $500,000 preference share dividends) 200,000 shares
12.25 (2.05) 10.20
Net earnings [($1,640,000 - $500,000 preference share dividends) 200,000 shares] *Preference share dividends: 80,000 shares x $6.25 = $500,000
5.70
PROBLEM 12.2A SLICK SOFTWARE LIMITED (concluded)
b. Total cash dividends declared during 2009 (data given) Less: Preference share dividend (80,000 shares x $6.25 per share) Cash dividends to ordinary shareholders Number of ordinary shares outstanding through 2009 Cash dividend per ordinary share ($450,000 200,000 shares)
$ $ $
950,000 500,000 450,000 200,000 2.25
c.
The single 2010 $8.00 figure for EPS is unfavorable in comparison with 2009 performance. Since 2010 has only one EPS figure, it should be compared to the earnings per share from continuing operations in 2009, which amounted to $12.25 per share. Slick Software Limiteds earnings per share from continuing operations fell $4.25 per share (approximately 35%) from 2009 to 2010.
The McGraw-Hill Companies, Inc., 2010 P12.2A (p.2)
35 Minutes, Strong a.
PROBLEM 12.3A PHOENIX LIMITED

PHOENIX LIMITED Income Statement For the Year Ended December 31, 2009
Sales Costs and expenses: Cost of goods sold Selling expenses General and administrative expenses Loss from settlement of litigation Income tax on continuing operations Profit from continuing operations Discontinued operations: Operating loss on discontinued operations (net of income tax benefit) Loss on disposal of discontinued operations (net of income tax benefit) Profit
$ $ 6,000,000 1,104,000 1,896,000 24,000 720,000 $
10,836,000
9,744,000 1,092,000
(252,000) (420,000) $ (672,000) 420,000
Earnings per share on ordinary share:
Earnings from continuing operations ($1,092,000
180,000 shares) Loss from discontinued operations ($672,000 180,000 shares) Net earnings ($420,000 180,000 shares)
6.07 (3.73) 2.34
Note: Selected EPS numbers have been rounded $.01 in order for EPS schedule to foot.
PROBLEM 12.3A PHOENIX LIMITED (concluded)

b. The gain on sale of treasury share represents the excess of reissue price received over the cost Phoenix paid to acquire some of its own share. Although a corporation may reissue treasury share at prices above or below its cost of acquiring its own share, the difference between amounts received and the cost of treasury shares does not result in gains or losses recognized in the income statement. Rather, the amount described as gain on sale of treasury share is included as part of share premium in the shareholders equity section of the balance sheet.
20 Minutes, Easy
PROBLEM 12.4A ALBERS LIMITED

Total Shareholders' Equity $ 840,000 $ 840,000 (42,000) 798,000 63,000 861,000 861,000 (92,400) 768,600 525,000 1,293,600 Number of Shares Outstanding 40,000 2,000 42,000 Book Value per Share $ 21.00 $ 20.00
Beginning balance Jan. 10 Declared and distributed 5% share div. Balance Mar. 15 Acquired 2,000 treasury share at cost of $21.00 per share Balance May 30 Reissued 2,000 treasury share at price of $31.50 per share Balance July 31 Share capital split 2-for-1 Balance Dec. 15 Declared $1.10 per share cash dividend Balance Dec. 31 Profit Balance
(2,000) 40,000 $ 2,000 42,000 42,000 84,000 84,000 84,000
19.95
$ $
$ $ $ $
20.50 10.25 9.15 15.40
Note to instructor: Profit actually increases book value throughout the year, not merely on the date upon which profit is closed into retained earnings.
20 Minutes, Medium
PROBLEM 12.5A STRAIT CORPORATION

STRAIT CORPORATION
Statement of Shareholders' Equity For the Year Ended December 31, 20__ a. Share Capital ($10 par Share Retained Treasury value) Premium Earnings Share $ 1,100,000 $ 1,765,000 $ 950,000 $ B alances, January 1, 20__ (80,000) Prior period errors (net of income tax benefit) 100,000 240,000 Issuance of ordinary share; 10,000 shares @ $34
Declaration and distribution of 5% stock dividend (6,000 shares at market price of $36 per share) Purchased 1,000 treasury share @$35 Sale of 500 treasury shares @ $36 Profit Cash dividends B alances, Decem ber 31, 20__
Total Shareholders' Equity $ 3,815,000 (80,000) 340,000 0 (35,000) 18,000 845,000 (142,700) 4,760,300
60,000
156,000 500
(216,000) (35,000) 17,500 $ 845,000 (142,700) 1,356,300 $ (17,500) $
$ 1,260,000 =SUM(f10.f18)
2,161,500
(part b is on following page)
PROBLEM 12.5A STRAIT CORPORATION (concluded)

b. Declaration/distribution of a 5% stock dividend has no effect on total shareholders equity. Declaration of a cash dividend reduces total shareholders equity by the amount of the dividend. The two types of dividends do not have the same impact upon shareholders equity. A cash dividend is a distribution of a corporations assets (cash) to shareholders and, as such, causes a decrease in shareholders equity. A stock dividend is simply issuing more share certificates to the existing group of shareholders with no accompanying increase or outflow of assets; a corporations own share is not an asset of the corporation. With both small and large share dividends, shareholders equity is adjusted to reflect the increased number of shares outstanding, but there is no additional equity created and no decrease in equity.
The McGraw-Hill Companies, Inc., 2010 P12.5A(p.2)
40 Minutes, Strong
PROBLEM 12.6A THOMPSON SERVICE

General Journal
a.
2009 Jan 3 Dividends Dividends Payable To record declaration of $1 per share cash dividend payable on Feb. 15 to shareholders of record on Jan. 31 Feb ## Dividends Payable Cash To record payment of dividend declared Jan. 3. ## Treasury Share Cash Purchased 6,000 treasury share at $40 per share. 9 Cash Treasury Share
Share Premium: Treasury Share
382,000 382,000
382,000 382,000
Apr
240,000 240,000
May
176,000 160,000 16,000
Sold 4,000 treasury share, which cost $160,000, at a price of $44 per share. June 1 Retained Earnings Stock Dividend to Be Distributed Share Premium: Stock Dividends Declared a 5% stock dividend (19,000 shares) on 380,000 outstanding shares. Market price $42, par value $1. To be distributed on June 30 to shareholders of record. ## Stock Dividend to Be Distributed Share Capital Issued 19,000 shares of share capital as 5% stock dividend. Aug 4 Cash
798,000 19,000 779,000
19,000 19,000
22,200 1,800 24,000
Treasury Share
Sold 600 shares of treasury share, which cost $24,000,
at a price of $37 per share. Dec ## Income Summary Retained Earnings To close Income Summary account for the year. ## Retained Earnings
Dividends
1,928,000 1,928,000
Dec
382,000 382,000
To close Dividends account.
PROBLEM 12.6A THOMPSON SERVICE (concluded)

b.
THOMPSON SERVICE Partial Balance Sheet December 31, 2009 Shareholders equity: Share capital, $1 par value, 500,000 shares authorized,
401,000 shares issued, of which 1,400 are held in the treasury
$ $ 4,202,000 779,000 14,200
401,000
Share premium: From issuance of share capital From stock dividend From treasury share Total issued and fully paid capital Retained earnings* Less: Treasury share, 1,400 shares at cost Total shareholders equity
$ $
4,995,200 5,396,200 3,452,600 8,848,800 56,000 8,792,800
*Computation of retained earnings at Dec. 31, 2009: Retained earnings at beginning of year Add: Profit for the year Subtotal Less: Cash dividend declared Jan. 3 Stock dividend declared June 1 Retained earnings, Dec. 31, 2009
$ $ $ 382,000 798,000 $
2,704,600 1,928,000 4,632,600 1,180,000 3,452,600
c.
Computation of maximum legal cash dividend per share at Dec. 31, 2009: Retained earnings at Dec. 31, 2009 Less: Restriction of retained earnings for treasury share owned Unrestricted retained earnings Number of shares outstanding (401,000 shares issued, minus 1,400 shares held in treasury) Maximum legal cash dividend per share ($3,396,600 divided by 399,600 shares)
3,452,600 56,000 3,396,600 399,600
8.50
30 Minutes, Strong
PROBLEM 12.7A TECH PROCESS LIMITED

Current Assets NE D D I NE Shareholders Equity D NE D I NE Net Cash Flow (from Any Source) NE D D I NE
a. Event 1 2 3 4 5 I = Increase D = Decrease NE = No effect b. Profit NE NE NE NE NE
1. Declaration of a cash dividend has no immediate effect upon profit or cash flows. It increases current liabilities (dividends payable), but has no effect on current assets. Also, retained earnings is decreased, resulting in a decrease in shareholders equity. 2. Payment of a cash dividend has no effect on revenue or expenses, but it reduces cash. Since it reduces cash, it also reduces current assets. The transaction has no effect on shareholders equity, which has already been decreased when the dividend was declared. 3. The purchase of treasury share has no effect on either revenue or expenses and, therefore, does not affect profit. But cash is used to purchase the treasury share, and this decreases cash and current assets. Because treasury share is deducted from shareholders equity in the balance sheet, its purchase decreases shareholders equity. 4. Reissuance of treasury share at a price less than its original cost results in a loss, but these losses are not recorded in the income statement. Instead share premium is decreased for the amount of the loss. Therefore, this transaction does not affect profit. Since the treasury share account is deducted from shareholders equity, reissuance of the share increases the total amount of shareholders equity. Also, both cash and current assets are increased as a result of the cash received from sale of the share.
5. Declaration of a stock dividend results in a reclassification of amounts from Retained Earnings to the Share Capital and Share Premium accounts. It has no effect on cash, current assets, shareholders equity, or profit.
PROBLEM 12.8A MANDELLA CORPORATION

MANDELLA CORPORATION Partial Balance Sheet December 31, 2008
Shareholders equity: Share Capital: Ordinary share, $10 par, 500,000 shares authorized, 150,000 shares issued, of which 10,000 are held in the treasury Stock dividend to be distributed (1) Share premium: From issuance of ordinary share From stock dividend (2) Total issued and paid capital Retained earnings (3) Less: Treasury share, 10,000 shares at cost of $34 per share Total shareholders equity (1) (2) (150,000 shares - 10,000 shares) x 10% = 140,000 shares @$10 par Total stock dividend (14,000 shares x $35) Par value (14,000 shares x $10) Share premium: stock dividend Profit for 2008 Less: Stock dividend (14,000 shares x $35) Retained earnings at end of 2008
3,000,000 350,000
$ $ $ $
490,000 (140,000) 350,000 940,000 490,000 450,000
(3)
b.
MANDELLA CORPORATION Partial Balance Sheet December 31, 2009
Shareholders equity: Share capital: Ordinary share, $5 par, 1,000,000 shares authorized, 328,000 shares issued and outstanding (1) Share premium: From issuance of ordinary share From stock dividend From treasury share (2) Total fully issued and paid capital Retained earnings (3) Total shareholders equity (1) (2) (3) (150,000 shares +14,000 shares) x 2 = 328,000 shares @ $5 par
10,000 shares x ($39 reissuance price - $34 cost) = $50,000
3,000,000 350,000 50,000
Retained earnings at end of 2008 Profit for 2009 Subtotal Less: Cash dividend (328,000 shares x$2) Retained earnings at end of 2009
$ $ $
450,000 1,080,000 1,530,000 656,000 874,000
PROBLEM 12.8A LLA CORPORATION
1,500,000 140,000 3,350,000 4,990,000 450,000 5,440,000 340,000 5,100,000
$ $ $
1,640,000
$ $
3,400,000 5,040,000 874,000 5,914,000
ESPER CORP. Partial Income Statement For the Year Ended December 31, 20__
PROBLEM 12.9A ESPER CORP.
Loss from continuing operations Profit from discontinued operations Loss
(Dollars in Thousands) $ (24,516) 6,215 $ (18,301)
b.
Loss Less: Preference share dividend requirements Net loss applicable to ordinary shareholders Weighted-average number of ordinary share Loss per share ($21,079 39,739)
(18,301) (2,778) (21,079) 39,739 (0.53)
30 Minutes, Easy a.
SOLUTIONS TO PROBLEMS SET B PROBLEM 12.1B PACIFIC AIRLINES

PACIFIC AIRLINES Income Statement For the Year Ended December 31, 20__
Sales Costs and expenses (including income taxes on continuing and other items of operations) Profit from continuing operations Discontinued operations: Operating profit from car rental (net of income tax) Gain on sale of car rental business (net of income tax) Profit
61,440,000 57,100,000 4,340,000 5,000,000 9,340,000
$ $ 670,000 4,330,000 $
Earnings per ordinary share: Earnings from continuing operations ($4,340,000 4,000,000 shares) Income from discontinued operations ($5,000,000 4,000,000 shares)
1.09 1.25
Net earnings ($9,340,000 4,000,000 shares)
2.34
b.
Estimated net earnings per share next year: Earnings per share from continuing operations Estimated decrease ($1.87 x 10%) Estimated net earnings per share next year The profitability of the rental car operations is not relevant, as these cars are no longer owned by Pacific Airlines.
$ $
1.87 0.19 1.68
The McGraw-Hill Companies, Inc., 2010 P12.1B
30 Minutes, Medium a.
BEACH LIMITED Condensed Income Statement For the Year Ended December 31, 2009 Sales Costs and expenses (including applicable income tax) Income from continuing operations Discontinued operations: Operating income (net of income tax) Loss on disposal (net of income tax benefit) Profit
PROBLEM 12.2B BEACH LIMITED
$ $ $ 205,000 (510,000) $
37,400,000 21,500,000 15,900,000
(305,000) 15,595,000
Earnings per share: Earnings from continuing operations [($15,900,000 - $600,000*) 200,000 shares]
Loss from discontinued operations ($305,000 200,000 shares)
$ $
Net earnings [($15,595,000 - $600,000 preference share dividends) 200,000 shares]
76.500 (1.525) 74.975
*Preference share dividends: 100,000 shares x $6 = $600,000
PROBLEM 12.2B BEACH LIMITED (concluded)

b.
BEACH LIMITED Statement of Comprehensive Income For the Year Ended December 31, 2009
Profit for the year Less: Prior period error (net of income tax) As restated Subtotal Other comprehensive income: Loss on fair value change of available-for-sale securities Total comprehensive income, December 31, 2009
$ $ $ $ $
15,595,000 310,000 15,285,000 15,285,000 (930,000) 14,355,000
c.
Total cash dividends declared during 2009 (data given) Less: Preference stock dividend (100,000 shares x $6 per share) Cash dividends to ordinary shareholders Number of ordinary shares outstanding through 2009 Cash dividend per ordinary share ($1,400,000 200,000 shares)
$ $ $
2,000,000 600,000 1,400,000 200,000 7.00
d.
The single 2010 $75.00 figure for EPS is unfavorable in comparison with 2009 performance. Since 2010 has only one EPS figure, it should be compared to the earnings per share from continuing operations in 2009, which amounted to $76.50 per share. Beach Limiteds earnings per share from continuing operations fell $1.50 per share (2%) from 2009 to 2010.
The McGraw-Hill Companies, Inc., 2010 P12.2B (p.2)
DEXTER LIMITED Income Statement For the Year Ended December 31, 2009
Sales Costs and expenses: Cost of goods sold Selling expenses General and administrative expenses Loss from settlement of litigation Income tax on continuing operations Profit from continuing operations Discontinued operations: Operating loss on discontinued operations (net of income tax benefit) Loss on disposal of discontinued operations (net of income tax benefit) Profit
PROBLEM 12.3B DEXTER LIMITED
$ $ 4,000,000 1,050,000 840,000 10,000 612,000
10,200,000
$ $
6,512,000 3,688,000
(180,000) (240,000) $ (420,000) 3,268,000
Earnings per share on ordinary share: Earnings from continuing operations ($3,688,000 500,000 shares) Loss from discontinued operations ($420,000 500,000 shares) Net earnings ($3,268,000 500,000 shares)
7.38 $ (0.84) 6.54
PROBLEM 12.3B DEXTER LIMITED (concluded)

b.
DEXTER LIMITED Statement of Comprehensive Income For the Year Ended December 31, 2009
Profit for the year Add: Prior period error (net of income tax) As restated Other comprehensive income: Gain on fair value changes of available-for-sale financial assets, net of tax Total comprehensive income, December 31, 2009
c.
The gain on sale of treasury share represents the excess of reissue price received over the cost Dexter paid to acquire some of its own shares. Although a corporation may reissue treasury share at prices above or below its cost of acquiring its own share, the difference between amounts received and the cost of treasury shares does not result in gains or losses recognized in the income statement. Rather, the amount described as gain on sale of treasury share is included as part of share premium in the shareholders equity section of the balance sheet.
PROBLEM 12.3B LIMITED (concluded)
$ $
3,268,000 80,000 3,348,000
$ $
110,000 3,458,000
rice received over the cost may reissue treasury share at e between amounts received and in the income statement. cluded as part of share premium
20 Minutes, Easy
PROBLEM 12.4B JESSEL LIMITED

Total Shareholders' Equity $ 600,000 $ 600,000 (16,500) 583,500 19,500 603,000 603,000 (252,000) 351,000 87,000 438,000 Number Book Value of Shares per Outstanding Share (rounded) 20,000 $ 30.00 1,000 21,000 $ 28.57 (300) 20,700 $ 300 21,000 21,000 42,000 42,000 42,000
Beginning balance Jan. 16 Declared and distributed 5% stock div. Balance Acquired 300 shares of treasury share Feb. 9 at cost of $55.00 per share Balance Reissued 300 shares of treasury share Mar. 3 at price of $65.00 per share Balance Jul. 5 Share capital split 2-for-1 Balance Nov. 22 Declared $6.00 per share cash dividend Balance Dec. 31 Profit Balance
28.19
$ $
$ $ $ $
28.71 14.36 8.36 10.43
Note to instructor: Profit actually increases book value throughout the year, not merely on the date upon which profit is closed into retained earnings.
20 Minutes, Medium
PROBLEM 12.5B DRY WALL LIMITED

DRY WALL LIMITED
Statement of Shareholders' Equity For the Year Ended December 31, 20__ a. Share Capital ($1 par Share Retained Treasury value) Premium Earnings Share $ 130,000 $ 1,170,000 $ 1,400,000 $ B alances, January 1, 20__ (47,000) Prior period adjustment (net of income tax benefit) 20,000 280,000 Issuance of ordinary share; 20,000 shares @ $15
Declaration and distribution of 10% stock dividend 15,000 (15,000 shares at market price of $17 per share) Purchased 3,000 shares of treasury share @$16 Sale of 1,000 treasury shares @ $18 Profit Cash dividends ($1 per share) $ 165,000 B alances, Decem ber 31, 20__ =SUM(f10.f18)
Total Shareholders' Equity $ 2,700,000 (47,000) 300,000 0 (48,000) 18,000 1,200,000 (163,000) 3,960,000
240,000 2,000 $ 1,692,000 $
(255,000) (48,000) 16,000 1,200,000 (163,000) 2,135,000 $ (32,000) $
(part b is on following page)
PROBLEM 12.5B DRY WALL LIMITED (concluded)

b. Declaration/distribution of a 10% stock dividend has no effect on total shareholders equity. Declaration of a cash dividend reduces total shareholders equity by the amount of the dividend. The two types of dividends do not have the same impact upon shareholders equity. A cash dividend is a distribution of a corporations assets (cash) to shareholders and, as such, causes a decrease in shareholders equity. A stock dividend is simply issuing more share certificates to the existing group of shareholders with no accompanying increase or outflow of assets; a corporations own share is not an asset of the corporation. With both small and large stock dividends, shareholders equity is adjusted to reflect the increased number of shares outstanding, but there is no additional equity created and no decrease in equity as occurs when a cash dividend is declared.
The McGraw-Hill Companies, Inc., 2010 P12.5B(p.2)
40 Minutes, Strong
PROBLEM 12.6B GREENE LIMITED

General Journal
a.
2009 Jan 5 Dividends Dividends Payable To record declaration of $1 per share cash dividend payable on Feb. 18 to shareholders of record on Jan. 31. Feb ## Dividends Payable Cash To record payment of dividend declared Jan. 5 ## Treasury Share Cash Purchased 1,000 shares of treasury share at $10 per share. ## Cash Treasury Share
560,000 560,000
560,000 560,000
Apr
10,000 10,000
May
6,000 5,000 1,000
Sold 500 shares of treasury share, which cost $5,000, at a price of $12 per share. June ## Retained Earnings Stock Dividend to Be Distributed Share Premium: Stock Dividends Declared a 5% stock dividend (27,975 shares) on 559,500 outstanding shares. Market price $11, par value $1. To be distributed on June 30 to shareholders of record at June 22. ## Stock Dividend to Be Distributed Share capital Issued 27,975 shares of share capital as 5% share dividend declared June 15. Aug ## Cash
307,725 27,975 279,750
27,975 27,975
2,925 75 3,000
Treasury Share
Sold 300 shares of treasury share, which cost $3,000,
at a price of $9.75 per share. Dec 31 Income Summary Retained Earnings To close Income summary account for the year. 31 Retained Earnings
Dividends
1,750,000 1,750,000
Dec
560,000 560,000
To close Dividends account.
PROBLEM 12.6B GREENE LIMITED (concluded)

b.
GREENE LIMITED Partial Balance Sheet December 31, 2009 Shareholders equity: Share Capital, $1 par value, 1,000,000 shares authorized,
587,975 shares issued, of which 200 are held in the treasury
$ $ 4,480,000 279,750 925 $ $
587,975
Share premium: From issuance of share capital From stock dividend From treasury share Total issued and fully paid capital Retained earnings* Less: Treasury share, 200 shares at cost Total shareholders equity
4,760,675 5,348,650 3,882,275 9,230,925 2,000 9,228,925
*Computation of retained earnings at Dec. 31, 2009: Retained earnings at beginning of year Add: Profit for year Subtotal Less: Cash dividend declared Jan. 3 Stock dividend declared June 1 Retained earnings, Dec. 31, 2009
$ $ $ 560,000 307,725 $
3,000,000 1,750,000 4,750,000 867,725 3,882,275
c.
Computation of maximum legal cash dividend per share at Dec. 31, 2009: Retained earnings at Dec. 31, 2009 Less: Restriction of retained earnings for treasury share owned Unrestricted retained earnings Number of shares outstanding (587,975 shares issued, minus 200 shares held in treasury) Maximum legal cash dividend per share ($3,880,275 divided by 587,775 shares)
3,882,275 2,000 3,880,275 587,775
6.60
30 Minutes, Strong
PROBLEM 12.7B HOT WATER LIMITED

Current Assets NE D D I NE Shareholders Equity D NE D I NE Net Cash Flow (from Any Source) NE D D I NE
a. Event 1 2 3 4 5 I = Increase D = Decrease NE = No effect b. 1. Profit NE NE NE NE NE
Declaration of a cash dividend has no immediate effect upon profit or cash flows. It increases current liabilities (dividends payable), but has no effect on current assets. Also, retained earnings is decreased, resulting in a decrease in shareholders equity. Payment of a cash dividend has no effect on revenue or expenses, but it reduces cash. Since it reduces cash, it also reduces current assets. The transaction has no effect on shareholders equity, which has already been decreased when the dividend was declared. The purchase of treasury share has no effect on either revenue or expenses and, therefore, does not affect profit. But cash is used to purchase the treasury share, and this decreases cash and current assets. Because treasury share is deducted from shareholders equity in the balance sheet, its purchase decreases shareholders equity. Reissuance of treasury share at a price less than its original cost results in a loss, but these losses are not recorded in the income statement. Instead share premium is decreased for the amount of the loss. Therefore, this transaction does not affect profit. Since the treasury share account is deducted from shareholders equity, reissuance of the share increases the total amount of shareholders equity. Also, both cash and current assets are increased as a result of the cash received from sale of the share.
2.
3.
4.
5.
Declaration of a stock dividend results in a reclassification of amounts from Retained Earnings to the Share Capital and Share Premium accounts. It has no effect on cash, current assets, shareholders equity, or profit.
PROBLEM 12.8B ADAMS CORPORATION

ADAMS CORPORATION Partial Balance Sheet December 31, 2008
Shareholders equity: Share capital: Ordinary share, $1 par, 100,000 shares authorized, 20,000 shares issued, 16,000 shares outstanding Stock dividend to be distributed (1) Share premium: From issuance of ordinary share From stock dividend (2) Total issued and fully paid capital Retained earnings (3) Less: Treasury share, 4,000 shares at cost of $30 per share Total shareholders equity (1) (2) (20,000 shares - 4,000 shares) x 10% = 16,000 shares @$1 par Total stock dividend (1,600 shares x $31) Par value (1,600 shares x $1) Share premium: stock dividend Profit for 2008 Less: Stock dividend (1,600 shares x $31) Retained earnings at end of 2008
480,000 48,000
$ $ $ $
49,600 (1,600) 48,000 850,000 49,600 800,400
(3)
b.
ADAMS CORPORATION Partial Balance Sheet December 31, 2009
Shareholders equity: Share capital: Ordinary share, $.50 par, 200,000 shares authorized, 43,200 shares issued and outstanding (1) Share premium: From issuance of ordinary share From stock dividend From treasury share (2) Total issued and fully paid capital Retained earnings (3) Total shareholders equity (1) (2) (3) (20,000 shares + 1,600 shares) x 2 = 43,200 shares @ $.50 par
4,000 shares x ($35 reissuance price - $30 cost) = $20,000
480,000 48,000 20,000
Retained earnings at end of 2008 Profit for 2009 Subtotal Less: Cash dividend (43,200 shares x$1) Retained earnings at end of 2009
$ $ $
800,400 810,000 1,610,400 43,200 1,567,200
PROBLEM 12.8B AMS CORPORATION
20,000 1,600 528,000 549,600 800,400 1,350,000 120,000 1,230,000
$ $ $
21,600
$ $
548,000 569,600 1,567,200 2,136,800
25 Minutes, Strong
PROBLEM 12.9B
BLUE JAY MANUFACTURING CORP.
a.
BLUE JAY MANUFACTURING CORPORATION Partial Income Statement For the Year Ended December 31, 20__ (Dollars in Thousands) $ (28,220) 12,000 $ (16,220)
Loss from continuing operations Profit from discontinued operations Loss
b.
Loss Less: Preference share dividend requirements Net loss applicable to ordinary shareholders Weighted-average number of ordinary share Loss per share ($16,220 10,000)
$ $ $
(16,220) (3,100) (19,320) 10,000 1.622
SOLUTIONS TO CRITICAL THINKING CASES

20 Minutes, Easy
CASE 12.1 WHAT'S THIS?
a. Both the operating profit from the Indian mobile telecommunications operations and the disposal gain should be classified in HTILs income statement as discontinued operations and should be shown separately from the results of HTILs ongoing business operations. These gains qualify for this separate treatment because the discontinued activities represented an entire identifiable segment of HTILs business operations. b. Acquisition of a new entity affect only the current year and future years, and are included in revenues and expenses from normal operations. c. The settlement of the court case by Cathay Pacific is classified in normal and recurring business operations. d. Liquidation of Shiseido Beautech Co., Ltd. is classified as discontinued operation because Shiseido Beautech will no longer be able to operate its business.
The McGraw-Hill Companies, Inc., 2010 Case 12.1
20 Minutes, Medium
CASE 12.2 IS THERE LIFE WITHOUT BASEBALL?
a.
If JPL had not sold the baseball team at the end of 2009, it still would have incurred the teams $1,300,000 operating loss for the year. However, the company would not have realized the $4,700,000 gain on the sale. Other items in the income statement would not have been affected. Thus, JPLs income for 2009 would have been $4,700,000 less than was actually reported, or $2,600,000 ($7,300,000 - $4,700,000 = $2,600,000).
b. In 2009, JPLs newspaper business earned $3,900,000, as shown by the subtotal, Profit from Continuing Operations. If the profitability of these operations increased by 7% in 2010, they would earn approximately $4,173,000 ($3,900,000 x 1.07 = $4,173,000). If the baseball team were still owned and lost $2,000,000 in 2010, JPL could be expected to earn a profit of about $2,173,000 in that year. c. Given that the baseball team was sold in 2009, JPL should earn a profit of approximately $4,173,000 in 2010, assuming that the profitability of the continuing newspaper operations increases by 7% ($3,900,000 x 1.07 = $4,173,000).
d. The operating loss incurred by the baseball team in 2009 indicates that the teams expenses (net of tax effects) exceeded its revenue by $1,300,000. If the expenses were $32,200,000, the revenue must have amounted to $1,300,000 less, or $30,900,000.
30 Minutes, Strong
CASE 12.3 USING EARNINGS PER SHARE STATISTICS
a.
The company reports earnings per share computed on both a basic and a diluted basis because it has outstanding convertible preference share. The conversion of these securities into ordinary share would increase the number of ordinary shares outstanding and thereby dilute (reduce) earnings per share of ordinary share. The primary purpose of a companys disclosing diluted earnings per share is to warn investors of the dilution in earnings that could occur if the convertible securities actually were converted. It is important to recognize that diluted earnings represent a hypothetical case. The convertible securities have not actually been converted into ordinary shares as of the close of the current year.
b.
The total dollar amount of the companys loss from discontinued operations can be computed from the earnings per share information as follows: Loss from discontinued operations per share ($6.90 - $3.60) .. Total loss from discontinued operations ($3.30 per share x 3 million shares) ..
c.
The approximate market price of the companys ordinary share is $69 per share. When a companys income statement includes an extraordinary item, the price-earnings ratio shown in newspapers is based upon basic earnings before extraordinary items ($6.90 x 10 = $69). (1) $7.59 ($6.90 x 110%) Only the continuing operations will be earning revenue and incurring expenses next year, and the extraordinary item is not expected to recur. Therefore, the starting point for projecting future net earnings should be earnings from continuing operations. Since both revenue and expenses are expected to increase by 10%, earnings per share also should increase 10%. (2) $6.05 ($5.50 x 110%) The diluted earnings per share figures show the effect that conversion of all of the convertible preference share into ordinary shares would have had upon this years earnings. Earnings per share from continuing operations would have been only $5.50, rather than $6.90. Thus, $5.50 per share becomes the logical starting point for forecasting next years net earnings. As in part (1), next years earnings are expected to rise by 10% over those of the current year.
d.
CASE 12.3 HARE STATISTICS

diluted basis because it has
ares outstanding and thereby se of a companys disclosing that could occur if the
l case. The convertible close of the current year.
ons can be computed from $3.30 $9,900,000
er share. When a companys o shown in newspapers is
ing expenses next year, and rting point for projecting . Since both revenue and should increase 10%.
sion of all of the convertible ears earnings. Earnings per her than $6.90. Thus, $5.50 ars net earnings. As in part the current year.
35 Minutes, Strong
CASE 12.4 INTERPRETING A STATEMENT OF CHANGES IN EQUITY
a.
Beginning of year: 77,987,500 shares outstanding (82,550,000 issued - 4,562,500 held in treasury) End of year: 77,353,100 shares outstanding (82,550,000 issued - 5,196,900 treasury shares) $95,700,000 total dividend declared on ordinary share 77,804,878 approximate number of shares entitled to $1.23 per stock dividend ($95,700,000 $1.23 per share) This answer appears reasonable, since the number of ordinary shares outstanding ranged from 77,987,500 at the beginning of the year to 77,353,100 at year-end. The 77,804,878 approximate figure for the $1.23 annual dividend appears compatible with the beginning and ending actual figures because it falls between these numbers.
b.
c.
The share issued during the year for the share option plans consisted of treasury shares, not newly issued shares. The Treasury Share account is used to account for repurchases of a corporations share, as well as the reissuance of treasury shares. When share is repurchased and subsequently reissued, the Ordinary Share account is not affected; these transactions do, however, affect the Treasury Share account, a contra- shareholders equity account. $29.79 average cost per share of treasury share at the beginning of the year ($135,900,000 total cost 4,562,500 treasury shares) The aggregate reissue price for the treasury shares must have been lower than the cost to acquire those treasury shares, because the Share Premium account was reduced by the reissuance of the treasury share. The cost of the treasury shares reissued was $16,700,000; the reissue price for the treasury shares must have been $15,300,000 to cause a $1,400,000 reduction in Share Premium. $63.61 average cost per share for treasury share acquired during the current year ($78,600,000 aggregate cost 1,235,700 shares repurchased) Earnings per share: Divide by the weighted-average number of shares outstanding throughout the year Book value per share: Divide by the actual number of shares outstanding as of the specific date (usually a balance sheet date)
d. e.
f. g.
60 Minutes, Strong
CASE 12.5 CLASSIFICATION OF UNUSUAL ITEMS AND THE POTENTIAL FINANCIAL IMPACT
a.
An asset represents something with future economic benefit. But if the amount at which the asset is presented in the balance sheet (i.e., its book value) cannot be recovered through future use or sale, any future economic benefit appears to be less than the assets current book value. In such cases, the asset should be written down to the recoverable amount.
b. According to IFRS, no extraordinary item should be disclosed in the financial statements.
c.
1.
Profit will be reduced since there is no extraordinary loss allowed in IFRS.
2.
Income before extraordinary items will be reduced since the losses are classified as ordinary.
3.
Income from Continuing Operations will be reduced as the losses are classified as ordinary.
4.
Given that these losses do not affect income taxes, they have no cash effects. Therefore, net cash flow from operating activities will be unaffected.
d. The p/e ratio is based upon income before extraordinary items (stated on a per-share basis). As stated in c (2), above, income before extraordinary items will be affected since the losses are classified as part of the ordinary operations. Therefore, the p/e ratio will be higher.
e.
Yes. Members of management have a self-interest in seeing share prices increase, which would favorably affect the value of their share options as well as share they already own. In addition, a rising share price makes it easier for the company to raise capital, benefits shareholders, and makes management look good.
CASE 12.5 CLASSIFICATION (continued)

The classification of these losses may well affect Elliot-Coles share price. Investors consider income from continuing operations a predictive subtotal. If the losses are classified as ordinary, this key subtotal will decline, probably below last years level. (The losses amount to 18% of pre-loss earnings, which exceeds the companys normal earnings growth of 15%. Thus, these losses may be sufficient to cause a decline in earnings relative to the preceding year.) This could have an adverse effect on share price.
In summary, the adverse effects of these losses on the companys share price are likely to be greater if the losses are classified as ordinary. Therefore, management has a self-interest in seeing these losses classified as an extraordinary item. f. These write-offs are likely to increase the earnings reported in future periods, especially if the company continues to do business in any of the related countries. With the assets having no book value, future earnings from these operations will not be reduced by charges for depreciation (or, in some cases, for a cost of goods sold). No ethical dilemma exists because the classification of these losses as extraordinary is not allowed.
g.
Note to instructor: This case is adapted from an incident involving an international pharmaceutical company. The details of the situation have been altered for the purpose of creating an introductory level textbook assignment, and the so-called quotations from corporate officers are entirely fictitious. Nonetheless, we believe that the outcome of the actual event provides insight into the financial reporting process and also to the importance that investors attach to the various computations of earnings per share.
The McGraw-Hill Companies, Inc., 2010 Case 12.5 (p.2)
CASE 12.5 CLASSIFICATION (concluded)

Management originally classified the losses as extraordinary, and the auditors concurred. The SEC, however, did not agree. It insisted that the corporation revise and reissue its financial statementwith the controversial items classified as ordinary operating losses. When the company announced the reclassification of these losses, its share price fell substantiallydespite the fact that the reported amount of profit remained unchanged. Who were the losers? Anyone who bought the share between the release of the original earnings figures and the announcement that substantial losses would be reclassified.
The McGraw-Hill Companies, Inc., 2010 Case 12.5 (p.3)
30 Minutes, Medium
SHAREHOLDERS' EQUITY AND EPS

The following answers are based on information from March 29, 2010 (part a.) and 2009 annual financial statements for the remaining parts. a. On March 29, 2010, Vodafone's share sold for a high of 151.75p and a low of 148.00p. These amounts will vary for other dates. b. The number of ordinary shares outstanding on Mar. 31, 2009 was 57,806,283,716. These shares were originally sold by the company for the total of the par value of the shares plus the share premium: 4,153,000,000 43,008,000,000 47,161,000,000 The average price at which the shares were sold is computed as follows: 43,008 million 47,161,000,000 / 57,806,283,716 shares = 0.82 per share c. There is no direct relationship between the amount the share originally sold for (.82) and the current market price of the share. The original price at which the share was sold is a historical amount that represents the investment of owners in the company while the current market price reflects a number of factors, including the long-term performance of the company and many other factors directly and indirectly related to the company's performance. Par value Share premium
d. The three-year trend in basic earnings per share (EPS), including discontinued operations, is negative 9.7 (2007), 12.56 (2008), and 5.84 (2009). Discontinued operations did not occur in 2009 and 2008, and had the most significant impact on EPS in 2007 when it accounts for a loss of .76 per share of a net amount of negative 9.7 of earnings per share.
e. The average number of shares used to compute basic EPS in 2009 was 52,737,00,000. This is different from the 57,806,283,716 because the number of shares outstanding decreased during the year. The year-end figure is in the balance sheet while a weighted average number is used in computing EPS.
CASE 12.6 OLDERS' EQUITY AND EPS INTERNET
, 2010 (part a.) and 2009 annual
75p and a low of 148.00p. These
was 57,806,283,716. These shares e of the shares plus the share
originally sold for (.82) and the e share was sold is a historical y while the current market price ce of the company and many other ance.
ding discontinued operations, is ed operations did not occur in 007 when it accounts for a loss of hare.
009 was 52,737,00,000. This is outstanding decreased during the d average number is used in

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CHAPTER 12 PROFIT AND CHANGES IN RETAINED EARNINGS

OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL THINKING CASES

The McGraw-Hill Companies, Inc., 2010 Overview

Real World: adidas AG Analysis of share information

The McGraw-Hill Companies, Inc., 2010 Overview

12.2 12.3 12.4 12.5 12.6

The McGraw-Hill Companies, Inc., 2010 Overview (p.2)

DESCRIPTIONS OF PROBLEMS AND CRITICAL THINKING CASES

Problems (Sets A and B)

The McGraw-Hill Companies, Inc., 2010 Description Problems

Critical Thinking Cases

The McGraw-Hill Companies, Inc., 2010 Desc. of Cases

Critical Thinking Cases (cont'd).

The McGraw-Hill Companies, Inc., 2010 Desc. of Cases (p.2)

SUGGESTED ANSWERS TO DISCUSSION QUESTIONS

The McGraw-Hill Companies, Inc., 2010 Q1-7

The McGraw-Hill Companies, Inc., 2010 Q8-13

The McGraw-Hill Companies, Inc., 2010 Q14-18

The McGraw-Hill Companies, Inc., 2010 Q19-20

SOLUTIONS TO BRIEF EXERCISES

Loss from discontinued operations, net of $40,000 income taxes Profit .

$15,000 33,000 ($18,000) $32,000

Number of ordinary shares outstanding after stock dividend:

The McGraw-Hill Companies, Inc., 2010 BE12.1,2,3,4

The McGraw-Hill Companies, Inc., 2010 BE12.1,2,3,4

MESSER COMPANY Statement of Comprehensive Income For year ended _______________

The McGraw-Hill Companies, Inc., 2010 BE12.5,6,7

Cash. To record payment of dividends.

The McGraw-Hill Companies, Inc., 2010 BE12.5,6,7

88,000 25,000 $113,000

$600,000 562,500 $1,162,500

The McGraw-Hill Companies, Inc., 2010 BE12.5,6,7

The McGraw-Hill Companies, Inc., 2010 BE12.5,6,7

375,000* 250,000 ** 125,000 ***

The McGraw-Hill Companies, Inc., 2010 BE12.8,9,10

$12,500,000 8,600,000 $3,900,000

(540,000) $3,360,000 $21.43 (2.97) $18.46

The McGraw-Hill Companies, Inc., 2010 E12.1,2,3

The McGraw-Hill Companies, Inc., 2010 E12.4,5

The McGraw-Hill Companies, Inc., 2010 E12.4,5

most useful one for operations represents the ure. Discontinued

$1,920,000 400,000 $4.80 $1,920,000 800,000 $1,120,000 300,000 $3.73

The McGraw-Hill Companies, Inc., 2010 E12.4,5

2007 $1.20 (2)

The McGraw-Hill Companies, Inc., 2010 E12.6,7

Ex. 12.9 Event a b c d e Ex. 12.10 a. Profit NE NE NE NE NE

The McGraw-Hill Companies, Inc., 2010 E12.8,9,10

The McGraw-Hill Companies, Inc., 2010 E12.11,12

ement of Changes in Equity

ement of Changes in Equity

ement of Changes in Equity and/or notes to financial statements.

enues . enses . it before income tax . me tax* . it ..

The McGraw-Hill Companies, Inc., 2010 E12.11,12

The McGraw-Hill Companies, Inc., 2010 E12.13,14

e: The cash dividends do not affect the number of outstanding shares.

e: No cash is paid out with a stock dividend or a share split.

The McGraw-Hill Companies, Inc., 2010 E12.13,14

The McGraw-Hill Companies, Inc., 2010 E12.15

SOLUTIONS TO PROBLEMS SET A PROBLEM 12.1A GREATER ASIAN AIRLINES

The McGraw-Hill Companies, Inc., 2010 P12.1A

O PROBLEMS SET A PROBLEM 12.1A ER ASIAN AIRLINES

_ $ 55,120,000 43,320,000 11,800,000 5,820,000 17,620,000

11.80 (0.59) 11.21

The McGraw-Hill Companies, Inc., 2010 P12.1A

375,000* 250,000 125,000 *