ACCT 302, FALL 1998

The following slides cover the tentatively planned Exam 2 Exercises and Problems Ch.15, Ch.16, & partial Ch.17

Chapter 15 Chapter 16 Chapter 17 (partial)

Ex 15-2 E16-1 Ex 17-1

Ex 15-3 E16-5 Ex 17-2

Ex 15-4 E16-6 Ex 17-8

Ex 15-5 E16-17 Ex 17-18

Ex 15-6 Ex 17-21

P15-2

P15-3

P15-6

Splitting Lump Sums received for Bonds + Stock:

1. Incremental Method: If total received and value of one is known…

(See Ill 15-3, p. 768)

2. Proportional Method: If market value of both are known then split cash received based on relative % of total value received.

(See Ill. 15-2, p. 767)

Ex 15-6: Bonds $5,000,000 5/9

Stock 10,000 x 10 x $40 = $4,000,000 4/9

Total $9,000,000

Part 1a asks for the Incremental Method. The Incremental method is demonstrated next, followed by a discussion of individual Calculations in the JE

Ex. 15-6 Where did the $200,000 bond issue costs come from???

Value of Units Sold: %

Bonds 5,000,000 (5/8.8)

Stock 9,600 units x 10 shares x $40 = 3,840,000 (3.8/8.8)

Total 8,840,000

Total UnderWriting fee 400 units x $880 = $352,000

Amount Allocated to Bonds vs. Stock:

Bonds: (5/8.8) x $352,000 = $200,000 rounded

(Shown as Bond Issue Cost)

Stock: (3.8/8.8) x $352,000 = $152,000

(Reflected as a decrease to PIC Excess, See p. 769)

Where did PIC EXCESS $3,148,000 come from??? PLUG!!!

Bond Issue Cost + Cash 200,000 + 8,448,000 = $8,648,000

- Bonds Payable (5,000,000)

- Par of Stock Issued ( 500,000)

Net Credit to PIC Excess $3,148,000=========

Part a2. asks for the Proportional Method. The proportional method is demonstrated next, followed by a discussion of individual Calculations in the JE

P15-2 REMEMBER:

5/1: (.7 x $120 x 500)/ 3 = $14,000

6/1: 14,000 - ((.7 x $120 x 100sh)/3)) = $11,200

6/5: 1. Remove CS Subscribed associated with her

2. Remove remaining Subscription Rec Associated with her

(100 x $120) x 70% x (2/3) … she made 1 pymt!

3. Balance is due to her 10,000 - 5,600 = 4,400

6/17: Sold for 105 vs 100 orig subscript… She will get Net Excess

10,500 - 10,000 = 500 BUT THIS GETS REDUCED BY $125

End Of Ch 15 Ex & Probs

Chapter 16 Stockholder’s Equity: Retained Earnings

Dividends: Can They be Paid vs. Can We Pay Them?

Legal Issues Working Capital Issue

The trend???

What is a Dividend Yield? Div / Stk Price

Stock Dividends: Permanent transfer from RE to PIC

Small (<20 -25%) base transfer on Market Price

Large (>25%) base transfer on Par Value

Own more shares… each worth proportionately less

Not a thing of value?

Stock Split: No JE, Just an adjustment of Par

Ex. 16-5

a) Cumulative Preferred, fully participating:

Preferred Common Total Remaining 366,000

1 Yr Arrears 14,000 14,000 352,000

Current 14,000 210,000 224,000 128,000

Split Remaining 8,000 120,000 128,000 0

(Based on % of Total Par Value)

.2/3.2 x 128,000 = 8,000 3/3.2 x 128,000 = 120,000

Ex. 16-5

b) Noncumulative, non-participating Split $366,000

Preferred Common Total

14,000 352,000 366,000

c) Noncumulative, participating in excess of 10%

Preferred Common Total Remaining

366,000

Current 14,000 210,000 224,000 142,000

Last 3% 90,000 90,000 52,000

Split 52,000 3,250 48,750 52,000 0

.2/3.2 x 52,000 = 3,250 3/3.2 x 52,000 = 48,750

Chapter 17 Topics for Exam 2:

Convertible Bonds

Bonds & Detachable Warrants

Simple EPS