The stockholders’ equity section of Leyland Corporation’s balance sheet at December 31 is presented here.

$$\begin{array}{c} \textbf{LEYLAND CORPORATION}\\ \textbf{Balance Sheet (partial)}\\ \end{array}$$

$$\begin{array}{lrr} \text{Stockholders’ equity}\\ \qquad\text{Paid-in capital}\\ \qquad\qquad\text{Preferred stock, cumulative, 10,000 shares authorized,}\\ \qquad\qquad\qquad\text{6,000 shares issued and outstanding}&\text{\$\hspace{7pt}600,000}\\ \qquad\qquad\text{Common stock, no par, 750,000 shares authorized,}\\ \qquad\qquad\qquad\text{580,000 shares issued}&\underline{\text{\hspace{6pt}2,900,000}}\\ \qquad\qquad\qquad\text{Total paid-in capital}&\text{\hspace{1pt}3,500,000}\\ \qquad\text{Retained earnings}&\underline{\text{\hspace{6pt}1,158,000}}\\ \qquad\text{Total paid-in capital and retained earnings}&\text{\hspace{1pt}4,658,000}\\ \qquad\text{Less: Treasury stock (6,000 common shares)}&\underline{\text{\hspace{19pt}32,000}}\\ \text{Total stockholders’ equity}&\underline{\underline{\text{\$\hspace{1pt}4,626,000}}}\\ \end{array}$$

Instructions

From a review of the stockholders’ equity section, answer the following questions.

(d) If the annual dividend on preferred stock is $36,000, what is the dividend rate on preferred stock?

The stockholders’ equity section of Leyland Corporation’s balance sheet at December 31 is presented here.

$$\begin{array}{c} \textbf{LEYLAND CORPORATION}\\ \textbf{Balance Sheet (partial)}\\ \end{array}$$

$$\begin{array}{lrr} \text{Stockholders’ equity}\\ \qquad\text{Paid-in capital}\\ \qquad\qquad\text{Preferred stock, cumulative, 10,000 shares authorized,}\\ \qquad\qquad\qquad\text{6,000 shares issued and outstanding}&\text{\$\hspace{7pt}600,000}\\ \qquad\qquad\text{Common stock, no par, 750,000 shares authorized,}\\ \qquad\qquad\qquad\text{580,000 shares issued}&\underline{\text{\hspace{6pt}2,900,000}}\\ \qquad\qquad\qquad\text{Total paid-in capital}&\text{\hspace{1pt}3,500,000}\\ \qquad\text{Retained earnings}&\underline{\text{\hspace{6pt}1,158,000}}\\ \qquad\text{Total paid-in capital and retained earnings}&\text{\hspace{1pt}4,658,000}\\ \qquad\text{Less: Treasury stock (6,000 common shares)}&\underline{\text{\hspace{19pt}32,000}}\\ \text{Total stockholders’ equity}&\underline{\underline{\text{\$\hspace{1pt}4,626,000}}}\\ \end{array}$$

Instructions

From a review of the stockholders’ equity section, answer the following questions.

(c) What is the par value of the preferred stock?

When a person borrows money to buy a house, the secured loan the bank issues is a mortgage. The house serves as the security the bank needs to justify the risk of loaning money. If a homeowner takes out another loan on the same house, the secured loan is a second mortgage. Some homeowners use their homes as collateral to get a home equity loan. In 2006, there were $51,234,170$ houses used as collateral for mortgages or home equity.

How many homeowners have only taken a first mortgage?

Listed below are events that affect stockholders’ equity.

c. Reported sales revenue of $120,000.

Required:

For each of the events, indicate whether it increases retained earnings (I), decreases retained earnings (D), or has no effect on retained earnings (NE).

The following financial statement data is from five separate companies:

Required
1. Answer the following questions about Company A:
a. What is the amount of equity on December 31, 2010?
b. What is the amount of equity on December 31, 2011?
c. What is the amount of liabilities on December 31, 2011?
2. Answer the following questions about Company B:
a. What is the amount of equity on December 31, 2010?
b. What is the amount of equity on December 31, 2011?
c. What is net income for year 2011?
3. Calculate the amount of assets for Company C on December 31, 2011.
4. Calculate the amount of owner investments for Company D during year 2011.
5. Calculate the amount of liabilities for Company E on December 31, 2010.

Investments in equity securities are deemed to be ‘‘passive’’ if:

a. less than 20% of the firm’s stock is owned.

b. between 20% and 50% of the firm’s stock is owned.

c. between 50% and 100% of the firm’s stock is owned.

d. 100% of the firm’s stock is owned.

At the beginning of the year, Morgan Company had total assets of $425,000 and total liabilities of$260,000.

Required:

If, during the year, total assets decreased by $52,000 and total stockholders’ equity increased by$35,000, what is the amount of total liabilities at the end of the year?

Determine whether each of the following changes in profitability ratios normally is good news or bad news about a company. a. Increase in profit margin. b. Decrease in asset turnover. c. Decrease in return on equity. d. Increase in the price-earnings ratio.

Information taken from the annual reports of Mobilex, a petroleum company, for three recent years appears below (amounts in millions of US$):$

$$\begin{array}{lrr} \hline &\textbf{2013}&\textbf{2012}&\textbf{2011}\\ \hline \text{Revenues}&\$404,552&\$377,635&\$370,680\\ \text{Net Income}&40,610&39,500&36,130\\ \text{Average Total Assets}&230,549&213,675&201,796\\ \text{Average Shareholders’ Equity}&117,803&112,515&106,471\\ \hline \end{array}$$

$ b. Disaggregate the rate of return on equity into profit margin, total assets turnover, and financial leverage ratio components.

Lurvey-Priest, Inc., was organized in 2011. At December 31, 2011, the Lurvey-Priest balance sheet reported the following stockholders’ equity:

$$\begin{array}{lr} \textbf{LURVEY-PRIEST, INC.}\\ \textbf{Stockholders’ Equity}\\ \textbf{December 31, 2011}\\ \hline \text{Paid-in Capital:}&\\ \quad\text{Paid-in Capital: Preferred stock, 4\\\%, \$55 par, 140,000 shares authorized, none issued}&\$ 0\\ \quad\text{Common stock, \$2 par, 540,000 shares authorized, 62,000 shares issued and outstanding}&124,000\\ \quad\text{Paid in capital in excess of par—common}&42,000\\ \quad\quad\text{Total paid-in capital}&166,000\\ \text{Retained earnings}&28,000\\ \text{Total stockholders’ equity}&\$ 194,000\\ \end{array}$$

Requirements

1. During 2012, the company completed the following selected transactions. Journalize each transaction. Explanations are not required. a. Issued for cash 1,500 shares of preferred stock at par value. b. Issued for cash 2,000 shares of common stock at a price of $7 per share. c. Net income for the year was$78,000, and the company declared no dividends. Make the closing entry for net income.
2. Prepare the stockholders’ equity section of the Lurvey-Priest balance sheet at December 31, 2012.

At the beginning of the year, Morgan Company had total assets of $425,000 and total liabilities of$260,000.

Required:

If, during the year, total assets increased by $73,000 and total liabilities increased by$32,000, what is the amount of total stockholders’ equity at the end of the year?

For each of the following, (I) identify the account as an asset, liability, equity, revenue, or expense; (2) identify the normal balance of the account; and (3) enter debit or credit to identify the kind of entry that would increase the account balance.

k. Notes Payable

The following financial statement data is from five separate companies.

Required
1. Answer the following questions about Company V:
 a. What is the amount of equity on December 31, 2010?
 b. What is the amount of equity on December 31, 2011?
 c. What is the net income or loss for the year 2011?
2. Answer the following questions about Company W:
 a. What is the amount of equity on December 31, 2010?
 b. What is the amount of equity on December 31, 2011?
 c. What is the amount of liabilities on December 31, 2011?
3. Calculate the amount of owner investments for Company X during 2011.
4. Calculate the amount of assets for Company Y on December 31, 2011.
5. Calculate the amount of liabilities for Company Z on December 31, 2010.

Chicago Paints Corporation has a target capital structure of 40 percent debt and 60 percent common equity. The company expects to have $\$ 600$ of after-tax income during the coming year, and it plans to retain 30 percent of its earnings. The current stock price is $\mathrm{P}_0=\$ 30$, the last dividend paid was $\mathrm{D}_0=\$ 2.00$, and the dividend is expected to grow at a constant rate of 7 percent. New stock can be sold at a flotation cost of $\mathrm{F}=25 \%$. What will Chicago Paints' marginal cost of equity capital be if it raises a total of $\$ 500$ of new capital?