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Chapter 13: Q17SE (page 711)
Computing price/earnings ratio Refer to the HEB data in Short Exercise S13-17. Assume the market price of HEB鈥檚 common stock is $19.50 per share. Compute HEB鈥檚 price/earnings ratio.
The price/ earnings ratio of the corporation is $6
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Eates Corp. issued 8,000 shares of no-par common stock for \(13 per share.
Requirements
1. Record issuance of the stock if the stock:
a. is true no-par stock.
b. has stated value of \)3 per share.
What does the rate of return on common stock show, and how is it calculated?
Preparing a corporate income statement
ABC Corporation鈥檚 accounting records include the following items, listed in no particular order, at December 31, 2018:
Other Income and (Expenses) \( (7,200) Cost of Goods Sold \) 30,000
Net Sales 81,000 Operating Expenses 25,000
Gain on Discontinued Operations 3,600
The income tax rate for ABC Corporation is 39%.
Prepare ABC鈥檚 income statement for the year ended December 31, 2018. Omit earnings per share. Use the multi-step format.
Accounting for a stock split
Decor and More Imports recently reported the following stockholders鈥� equity:
Common Stock鈥擻(1 Par Value; 490,000,000 shares
authorized, 119,000,000 shares issued and outstanding
Paid-In Capital:
654,000,000
\) 119,000,000
267,000,000
Retained Earnings
Total Stockholders鈥� Equity \( 921,000,000
Stockholders鈥� Equity
Paid-In Capital in Excess of Par鈥擟ommon 148,000,000
Total Paid-In Capital
Suppose Decor and More split its common stock 2-for-1 in order to decrease the market price per share of its stock. The company鈥檚 stock was trading at \)17 per share immediately before the split.
Requirements
1. Prepare the stockholders鈥� equity section of the Decor and More Imports balance sheet after the stock split.
Organizing a corporation and issuing stock
Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
2. Would you recommend they initially issue preferred or common stock?Why?
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