Page 713 - Accounting Principles (A Business Perspective)

17. Analysis and interpretation of financial statements

Exercise G Nelson Company began the year 2010 with total stockholders' equity of USD 2,400,000. Its net
income for 2010 was USD 640,000, and USD 106,800 of dividends were declared. Compute the rate of return on
average stockholders' equity for 2010. No preferred stock was outstanding.

Exercise H Rogers Company had 60,000 shares of common stock outstanding on 2010 January 1. On 2010
April 1, it issued 20,000 additional shares for cash. The amount of earnings available for common stockholders for
2010 was USD 600,000. What amount of EPS of common stock should the company report?
Exercise I Smith Company started 2011 with 800,000 shares of common stock outstanding. On March 31, it
issued 96,000 shares for cash, and on September 30, it purchased 80,000 shares of its own stock for cash.
Compute the weighted-average number of common shares outstanding for the year.

USD2,400,000
Exercise J A company reported EPS of USD 2 (or ) for 2009, ending the year with
1,200,000 shares
1,200,000 shares outstanding. In 2010, the company earned net income of USD 7,680,000, issued 320,000 shares
of common stock for cash on September 30, and distributed a 100 per cent stock dividend on 2010 December 31.
Compute EPS for 2010, and compute the adjusted earnings per share for 2009 that would be shown in the 2010

annual report.
Exercise K A company paid interest of USD 32,000, incurred federal income taxes of USD 88,000, and had
net income (after taxes) of USD 112,000. How many times was interest earned?
Exercise L John Company had 20,000 shares of USD 600 par value, 8 per cent preferred stock outstanding.
Net income after taxes was USD 5,760,000. The market price per share was USD 720.
a. How many times were the preferred dividends earned?
b. What was the dividend yield on the preferred stock assuming the regular preferred dividends were declared
and paid?
Exercise M A company had 80,000 weighted-average number of shares of USD 320 par value common stock

outstanding. The amount of earnings available to common stockholders was USD 800,000. Current market price
per share is USD 720. Compute the EPS and the price-earnings ratio.
Problems
Problem A Loom's comparative statements of income and retained earnings for 2010 and 2009 are given
below.

Loom
Consolidated statement of earnings
For the years ended 2010 December 31, and 2009
(USD thousands, except per data share)
December 31
(1) (2)
2010 2009
Net sales $ 2,403,100 $ 2,297,800
Cost of sales 1,885,700 1,651,300
Gross earnings $ 517,400 $ 646,500
Selling, general and administrative expenses 429,700 376,300
Goodwill amortization 37,300 35,200
Impairment write down of goodwill 158,500 0
Operating earnings (loss) $ (108,100) $235,000
Interest expense (116,900) (95,400)
Other expense-net (21,700) (6,100)
Earnings (loss) before income tax (benefit) $ (246,700) $133,500
expense, extraordinary item and cumulative
effect of change in accounting principles
Income tax (benefit) expense (19,400) 73,200
Earnings (loss) before cumulative effect of $ (227,300) $60,300

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