Business Finance
The principle os Accounting Week 4

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Garcia Corporation recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, he made the following entries for the corporation’s capital stock. May 2 Cash Capital Stock (Issued 7,200 shares of $11 par value common stock at $15 per share) 10 Cash Capital Stock (Issued 12,160 shares of $18 par value preferred stock at $51 per share) 15 Capital Stock Cash (Purchased 610 shares of common stock for the treasury at $13 per share) 108,000 108,000 620,160 620,160 7,930 7,930 On the basis of the explanation for each entry, prepare the entries that should have been made for the capital stock transactions. (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 2. On October 31, the stockholders’ equity section of Pele Company’s balance sheet consists of common stock $496,800 and retained earnings $398,400. Pele is considering the following two courses of action: (1) Declaring a 5% stock dividend on the 82,800 $6 par value shares outstanding (2) Effecting a 2-for-1 stock split that will reduce par value to $3 per share. The current market price is $15 per share. Prepare a tabular summary of the effects of the alternative actions on the company’s stockholders’ equity and outstanding shares. Pele Company’s Balance Sheet Before Action After Stock Dividend After Stock Split Stockholders’ equity Paid-in capital $ $ $ $ $ $ Retained earnings Total stockholders’ equity Outstanding shares 3. The stockholders’ equity section of Tootsie Roll Industries’ balance sheet is shown in the Consolidated Statement of Financial Position. (Note that Tootsie Roll has two classes of common stock. To answer the following questions, add the two classes of stock together.) TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF Earnings, Comprehensive Earnings and Retained Earnings (in thousands except per share data) For the year ended December 31, 2011 2010 2009 Net product sales $528,369 $517,149 $495,592 Rental and royalty revenue 4,136 4,299 3,739 Total revenue 532,505 521,448 499,331 Product cost of goods sold 365,225 349,334 319,775 Rental and royalty cost 1,038 1,088 852 Total costs 366,263 350,422 320,627 Product gross margin 163,144 167,815 175,817 Rental and royalty gross margin 3,098 3,211 2,887 Total gross margin 166,242 171,026 178,704 Selling, marketing and administrative expenses 108,276 106,316 103,755 Impairment charges — — 14,000 Earnings from operations 57,966 64,710 60,949 Other income (expense), net 2,946 8,358 2,100 Earnings before income taxes 60,912 73,068 63,049 Provision for income taxes 16,974 20,005 9,892 Net earnings $43,938 $53,063 $53,157 Net earnings Other comprehensive earnings (loss) Comprehensive earnings Retained earnings at beginning of year. Net earnings Cash dividends Stock dividends Retained earnings at end of year $43,938 (8,740) $35,198 $135,866 43,938 (18,360) (47,175) $114,269 $53,063 1,183 $54,246 $53,157 2,845 $56,002 $147,687 53,063 (18,078) (46,806) $135,866 $144,949 53,157 (17,790) (32,629) $147,687 Earnings per share $0.76 $0.90 Average Common and Class B Common shares 57,892 58,685 outstanding (The accompanying notes are an integral part of these statements.) $0.89 59,425 CONSOLIDATED STATEMENTS OF Financial Position TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data) Assets December 31, 2011 2010 CURRENT ASSETS: Cash and cash equivalents $78,612 $115,976 Investments 10,895 7,996 Accounts receivable trade, less allowances of $1,731 and $1,531 41,895 37,394 Other receivables 3,391 9,961 Inventories: Finished goods and work-in-process 42,676 35,416 Raw materials and supplies 29,084 21,236 Prepaid expenses 5,070 6,499 Deferred income taxes 578 689 Total current assets 212,201 235,167 PROPERTY, PLANT AND EQUIPMENT, at cost: Land 21,939 21,696 Buildings 107,567 102,934 Machinery and equipment 322,993 307,178 Construction in progress 2,598 9,243 455,097 440,974 Less—Accumulated depreciation 242,935 225,482 Net property, plant and equipment 212,162 215,492 OTHER ASSETS: Goodwill 73,237 73,237 Trademarks 175,024 175,024 Investments 96,161 64,461 Split dollar officer life insurance 74,209 74,441 Prepaid expenses 3,212 6,680 Equity method investment 3,935 4,254 Deferred income taxes 7,715 9,203 Total other assets 433,493 407,300 Total assets $857,856 $857,959 Liabilities and Shareholders’ Equity December 31, 2011 2010 CURRENT LIABILITIES: Accounts payable $10,683 $9,791 Dividends payable 4,603 4,529 Accrued liabilities 43,069 44,185 Total current liabilities 58,355 58,505 NONCURRENT LIABILITES: Deferred income taxes 43,521 47,865 Postretirement health care and life insurance benefits 26,108 20,689 Industrial development bonds 7,500 7,500 Liability for uncertain tax positions 8,345 9,835 Deferred compensation and other liabilities 48,092 46,157 Total noncurrent liabilities 133,566 132,046 SHAREHOLDERS’ EQUITY: Common stock, $.69-4/9 par value—120,000 shares authorized— 36,479 and 36,057 respectively, issued Class B common stock, $.69-4/9 par value—40,000 shares authorized—21,025 and 20,466 respectively, issued Capital in excess of par value Retained earnings, per accompanying statement Accumulated other comprehensive loss Treasury stock (at cost)—71 shares and 69 shares, respectively Total shareholders’ equity Total liabilities and shareholders’ equity 25,333 25,040 14,601 14,212 533,677 114,269 (19,953) (1,992) 665,935 $857,856 505,495 135,866 (11,213) (1,992) 667,408 $857,959 TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF Cash Flows (in thousands) For the year ended December 31, 2011 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $43,938 $53,063 $53,157 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 19,229 18,279 17,862 Impairment charges — — 14,000 Impairment of equity method investment — — 4,400 Loss from equity method investment 194 342 233 Amortization of marketable security premiums 1,267 522 320 Changes in operating assets and liabilities: Accounts receivable (5,448) 717 (5,899) Other receivables 3,963 (2,373) (2,088) Inventories (15,631) (1,447) 455 Prepaid expenses and other assets 5,106 4,936 5,203 Accounts payable and accrued liabilities 84 2,180 (2,755) Income taxes payable and deferred (5,772) 2,322 (12,543) Postretirement health care and life insurance benefits 2,022 1,429 1,384 Deferred compensation and other liabilities 2,146 2,525 2,960 Others (708) 310 305 Net cash provided by operating activities 50,390 82,805 76,994 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (16,351) (12,813) (20,831) Net purchase of trading securities (3,234) (2,902) (1,713) Purchase of available for sale securities (39,252) (9,301) (11,331) Sale and maturity of available for sale securities 7,680 8,208 17,511 Net cash used in investing activities (51,157) (16,808) (16,364) CASH FLOWS FROM FINANCING ACTIVITIES: Shares repurchased and retired (18,190) (22,881) (20,723) Dividends paid in cash (18,407) (18,130) (17,825) Net cash used in financing activities (36,597) (41,011) (38,548) Increase (decrease) in cash and cash equivalents (37,364) 24,986 22,082 Cash and cash equivalents at beginning of year 115,976 90,990 68,908 Cash and cash equivalents at end of year $78,612 $115,976 $90,990 Supplemental cash flow information Income taxes paid $16,906 $20,586 $22,364 Interest paid $38 $49 $182 Stock dividend issued $47,053 $46,683 $32,538 (The accompanying notes are an integral part of these statements.) Answer the following questions. Don't show me this message again for the assignment What is the par or stated value per share of Tootsie Roll’s common stock? (Round answer to 4 decimal places, e.g. 1.2531.) Par or stated value per share $ Don't show me this message again for the assignment What percentage of Tootsie Roll’s authorized common stock was issued at December 31, 2011? (Round to 0 decimal places, e.g. 17%) Percentage of common stock issued % Don't show me this message again for the assignment How many shares of common stock were outstanding at December 31, 2010, and at December 31, 2011? (Enter the answers in thousands.) 2011 2010 Number of shares outstanding Don't show me this message again for the assignment Calculate the payout ratio, earnings per share, and return on common stockholders’ equity for 2011. (Round earnings per share to 2 decimal places, e.g. 15.12 and all other answers to 1 decimal places, e.g. 12.5%.) Payout ratio Earnings per share Return on common stockholders’ equity % $ % Don't show me this message again for the assignment 4. The financial statements of The Hershey Company and Tootsie Roll are presented below. THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 2011 2010 2009 In thousands of dollars except per share amounts Net Sales $6,080,788 $5,671,009 $5,298,668 Costs and Expenses: Cost of sales 3,548,896 3,255,801 3,245,531 Selling, marketing and administrative 1,477,750 1,426,477 1,208,672 Business realignment and impairment (credits) (886) 83,433 82,875 charges, net Total costs and expenses 5,025,760 4,765,711 4,537,078 Income before Interest and Income Taxes 1,055,028 905,298 761,590 Interest expense, net 92,183 96,434 90,459 Income before Income Taxes 962,845 808,864 671,131 Provision for income taxes 333,883 299,065 235,137 Net Income $628,962 $509,799 $435,994 Net Income Per Share—Basic—Class B $2.58 $2.08 $1.77 Common Stock Net Income Per Share—Diluted—Class B $2.56 $2.07 $1.77 Common Stock Net Income Per Share—Basic—Common Stock $2.85 $2.29 $1.97 Net Income Per Share—Diluted—Common $2.74 $2.21 $1.90 Stock Cash Dividends Paid Per Share: Common Stock $1.3800 $1.2800 $1.1900 Class B Common Stock 1.2500 1.1600 1.0712 The notes to consolidated financial statements are an integral part of these statements and are included in the Hershey's 2011 Annual Report, available at www.thehersheycompany.com. THE HERSHEY COMPANY CONSOLIDATED BALANCE SHEETS December 31, In thousands of dollars ASSETS Current Assets: Cash and cash equivalents Accounts receivable—trade Inventories Deferred income taxes Prepaid expenses and other Total current assets Property, Plant and Equipment, Net Goodwill Other Intangibles Deferred Income Taxes Other Assets Total assets LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable Accrued liabilities Accrued income taxes Short-term debt 2011 2010 $693,686 399,499 648,953 136,861 167,559 2,046,558 1,559,717 516,745 111,913 38,544 138,722 $4,412,199 $884,642 390,061 533,622 55,760 141,132 2,005,217 1,437,702 524,134 123,080 21,387 161,212 $4,272,732 $420,017 612,186 1,899 42,080 $410,655 593,308 9,402 24,088 Current portion of long-term debt Total current liabilities Long-term Debt Other Long-term Liabilities Total liabilities Commitments and Contingencies Stockholders’ Equity: The Hershey Company Stockholders’ Equity Preferred Stock, shares issued: none in 2011 and 2010 Common Stock, shares issued: 299,269,702 in 2011 and 299,195,325 in 2010 Class B Common Stock, shares issued: 60,632,042 in 2011 and 60,706,419 in 2010 Additional paid-in capital Retained earnings Treasury—Common Stock shares, at cost: 134,695,826 in 2011 and 132,871,512 in 2010 Accumulated other comprehensive loss The Hershey Company stockholders’ equity Noncontrolling interests in subsidiaries Total stockholders’ equity Total liabilities and stockholders’equity 97,593 1,173,775 1,748,500 617,276 3,539,551 — 261,392 1,298,845 1,541,825 494,461 3,335,131 — — — 299,269 299,195 60,632 60,706 490,817 4,699,597 434,865 4,374,718 (4,258,962) (4,052,101) (442,331) 849,022 23,626 872,648 $4,412,199 (215,067) 902,316 35,285 937,601 $4,272,732 THE HERSHEY COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2011 2010 In thousands of dollars Cash Flows Provided from (Used by) Operating Activities Net income $628,962 $509,799 Adjustments to reconcile net income to net cash provided from operations: Depreciation and amortization 215,763 197,116 Stock-based compensation expense, net of tax of 28,341 32,055 $15,127, $17,413 and $19,223, respectively Excess tax benefits from stock-based compensation (13,997) (1,385) Deferred income taxes 33,611 (18,654) Gain on sale of trademark licensing rights, net of tax of (11,072) — $5,962 Business realignment and impairment charges, net of 30,838 77,935 tax of $18,333, $20,635 and $38,308, respectively Contributions to pension plans (8,861) (6,073) Changes in assets and liabilities, net of effects from business acquisitions and divestitures: Accounts receivable—trade (9,438) 20,329 Inventories (115,331) (13,910) Accounts payable 7,860 90,434 Other assets and liabilities (205,809) 13,777 Net Cash Provided from Operating Activities 580,867 901,423 Cash Flows Provided from (Used by) Investing Activities Capital additions (323,961) (179,538) Capitalized software additions (23,606) (21,949) Proceeds from sales of property, plant and equipment 312 2,201 Proceeds from sales of trademark licensing rights 20,000 — Business acquisitions (5,750) — Net Cash (Used by) Investing Activities (333,005) (199,286) 2009 $435,994 182,411 34,927 (4,455) (40,578) — 60,823 (54,457) 46,584 74,000 37,228 293,272 1,065,749 (126,324) (19,146) 10,364 — (15,220) (150,326) Cash Flows Provided from (Used by) Financing Activities Net change in short-term borrowings Long-term borrowings Repayment of long-term debt Proceeds from lease financing agreement Cash dividends paid Exercise of stock options Excess tax benefits from stock-based compensation Contributions from noncontrolling interests in subsidiaries Repurchase of Common Stock Net Cash (Used by) Financing Activities (Decrease) Increase in Cash and Cash Equivalents Cash and Cash Equivalents as of January 1 Cash and Cash Equivalents as of December 31 Interest Paid Income Taxes Paid 10,834 249,126 (256,189) 47,601 (304,083) 184,411 13,997 — 1,156 348,208 (71,548) — (283,434) 92,033 1,385 10,199 (384,515) (169,099) (438,818) (71,100) (190,956) 631,037 884,642 253,605 $693,686 $884,642 $97,892 $97,932 292,315 350,948 (458,047) — (8,252) — (263,403) 28,318 4,455 7,322 (9,314) (698,921) 216,502 37,103 $253,605 $91,623 252,230 TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF Earnings, Comprehensive Earnings and Retained Earnings (in thousands except per share data) For the year ended December 31, 2011 2010 2009 Net product sales $528,369 $517,149 $495,592 Rental and royalty revenue 4,136 4,299 3,739 Total revenue 532,505 521,448 499,331 Product cost of goods sold 365,225 349,334 319,775 Rental and royalty cost 1,038 1,088 852 Total costs 366,263 350,422 320,627 Product gross margin 163,144 167,815 175,817 Rental and royalty gross margin 3,098 3,211 2,887 Total gross margin 166,242 171,026 178,704 Selling, marketing and administrative expenses 108,276 106,316 103,755 Impairment charges — — 14,000 Earnings from operations 57,966 64,710 60,949 Other income (expense), net 2,946 8,358 2,100 Earnings before income taxes 60,912 73,068 63,049 Provision for income taxes 16,974 20,005 9,892 Net earnings $43,938 $53,063 $53,157 Net earnings Other comprehensive earnings (loss) Comprehensive earnings Retained earnings at beginning of year. Net earnings Cash dividends Stock dividends Retained earnings at end of year Earnings per share Average Common and Class B Common shares outstanding $43,938 (8,740) $35,198 $135,866 43,938 (18,360) (47,175) $114,269 $53,063 1,183 $54,246 $53,157 2,845 $56,002 $147,687 53,063 (18,078) (46,806) $135,866 $144,949 53,157 (17,790) (32,629) $147,687 $0.76 $0.90 $0.89 57,892 58,685 59,425 (The accompanying notes are an integral part of these statements.) CONSOLIDATED STATEMENTS OF Financial Position TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data) Assets December 31, 2011 2010 CURRENT ASSETS: Cash and cash equivalents $78,612 $115,976 Investments 10,895 7,996 Accounts receivable trade, less allowances of $1,731 and $1,531 41,895 37,394 Other receivables 3,391 9,961 Inventories: Finished goods and work-in-process 42,676 35,416 Raw materials and supplies 29,084 21,236 Prepaid expenses 5,070 6,499 Deferred income taxes 578 689 Total current assets 212,201 235,167 PROPERTY, PLANT AND EQUIPMENT, at cost: Land 21,939 21,696 Buildings 107,567 102,934 Machinery and equipment 322,993 307,178 Construction in progress 2,598 9,243 455,097 440,974 Less—Accumulated depreciation 242,935 225,482 Net property, plant and equipment 212,162 215,492 OTHER ASSETS: Goodwill 73,237 73,237 Trademarks 175,024 175,024 Investments 96,161 64,461 Split dollar officer life insurance 74,209 74,441 Prepaid expenses 3,212 6,680 Equity method investment 3,935 4,254 Deferred income taxes 7,715 9,203 Total other assets 433,493 407,300 Total assets $857,856 $857,959 Liabilities and Shareholders’ Equity December 31, 2011 2010 CURRENT LIABILITIES: Accounts payable $10,683 $9,791 Dividends payable 4,603 4,529 Accrued liabilities 43,069 44,185 Total current liabilities 58,355 58,505 NONCURRENT LIABILITES: Deferred income taxes 43,521 47,865 Postretirement health care and life insurance benefits 26,108 20,689 Industrial development bonds 7,500 7,500 Liability for uncertain tax positions 8,345 9,835 Deferred compensation and other liabilities 48,092 46,157 Total noncurrent liabilities 133,566 132,046 SHAREHOLDERS’ EQUITY: Common stock, $.69-4/9 par value—120,000 shares authorized— 25,333 25,040 36,479 and 36,057 respectively, issued Class B common stock, $.69-4/9 par value—40,000 shares 14,601 14,212 authorized—21,025 and 20,466 respectively, issued Capital in excess of par value Retained earnings, per accompanying statement Accumulated other comprehensive loss Treasury stock (at cost)—71 shares and 69 shares, respectively Total shareholders’ equity Total liabilities and shareholders’ equity 533,677 114,269 (19,953) (1,992) 665,935 $857,856 505,495 135,866 (11,213) (1,992) 667,408 $857,959 TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF Cash Flows (in thousands) For the year ended December 31, 2011 2010 2009 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $43,938 $53,063 $53,157 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 19,229 18,279 17,862 Impairment charges — — 14,000 Impairment of equity method investment — — 4,400 Loss from equity method investment 194 342 233 Amortization of marketable security premiums 1,267 522 320 Changes in operating assets and liabilities: Accounts receivable (5,448) 717 (5,899) Other receivables 3,963 (2,373) (2,088) Inventories (15,631) (1,447) 455 Prepaid expenses and other assets 5,106 4,936 5,203 Accounts payable and accrued liabilities 84 2,180 (2,755) Income taxes payable and deferred (5,772) 2,322 (12,543) Postretirement health care and life insurance benefits 2,022 1,429 1,384 Deferred compensation and other liabilities 2,146 2,525 2,960 Others (708) 310 305 Net cash provided by operating activities 50,390 82,805 76,994 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (16,351) (12,813) (20,831) Net purchase of trading securities (3,234) (2,902) (1,713) Purchase of available for sale securities (39,252) (9,301) (11,331) Sale and maturity of available for sale securities 7,680 8,208 17,511 Net cash used in investing activities (51,157) (16,808) (16,364) CASH FLOWS FROM FINANCING ACTIVITIES ...
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