Financial Accounting - Access
4th Edition
ISBN: 9781259958533
Author: SPICELAND
Publisher: MCG
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Chapter 10, Problem 10.8APEM
Earnings Management
Renegade Clothing is struggling to meet analysts’ forecasts. It’s early December 2015, and the year-end projections are in. Listed below are the projections for the year ended 2015 and the comparable actual amounts for 2014.
| Projected 2015 | Actual 2014 | |
| Sales | $14,000,000 | $16,023,000 |
| Net income | 878,000 | 1,113,000 |
| Total assets | $ 6,500,000 | $ 6,821.000 |
| Total liabilities | $ 2,500,000 | $ 2,396,000 |
| 4,000,000 | 4,425,000 | |
| Total liabilities and stockholders' equity | $ 6,500,000 | $ 6,821,000 |
| Shares outstanding at year end | 950,000 | 950,000 |
Analysts
Ronald Outlaw, the director of marketing, has a creative idea to improve earnings per share and the return on equity for 2015. He proposes the company borrow additional funds and use the proceeds to repurchase some of its own stock—treasury shares. Is this a good idea?
Required:
1. Calculate the projected earnings per share and return on equity for 2015 before any repurchase of stock.
Now assume Renegade Clothing borrows $1 million and uses the money to purchase 100,000 shares of its own stock at $10 per share. The projections for 2015 will change as follows:
| 2015 | 2014 | |
| Sales | $14,000,000 | $16,023,000 |
| Net income | 878,000 | 1,113,000 |
| Total assets | $ 6,500,000 | $ 6,821,000 |
| Total liabilities | $ 3,500,000 | $ 2,396,000 |
| Stockholders' equity | 3,000,000 | 4,425,000 |
| Total liabilities and stockholders' equity | $ 6,500,000 | $ 6,821,000 |
| Shares outstanding at year end | 850,000 | 950,000 |
2. Calculate the new projected earnings per share and return on equity for 2015, assuming the company goes through with the
3. Explain how the repurchase of treasury stock near year end improves earnings per share and the return on equity ratio.
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Chapter 10 Solutions
Financial Accounting - Access
Ch. 10 - Corporations typically do not first raise capital...Ch. 10 - What is the difference between a public and a...Ch. 10 - Prob. 3RQCh. 10 - Which form of business organization is most...Ch. 10 - Prob. 5RQCh. 10 - Prob. 6RQCh. 10 - 7.Explain the difference between authorized,...Ch. 10 - Prob. 8RQCh. 10 - Prob. 9RQCh. 10 - What are the three potential features of preferred...
Ch. 10 - Prob. 11RQCh. 10 - Prob. 12RQCh. 10 - How is the accounting for a repurchase of a...Ch. 10 - Prob. 14RQCh. 10 - Prob. 15RQCh. 10 - Prob. 16RQCh. 10 - Prob. 17RQCh. 10 - 18.What happens to the par value, the shares...Ch. 10 - Prob. 19RQCh. 10 - Prob. 20RQCh. 10 - Prob. 21RQCh. 10 - Prob. 22RQCh. 10 - Prob. 23RQCh. 10 - Prob. 10.1BECh. 10 - Prob. 10.2BECh. 10 - Record issuance of common stock (LO102) Western...Ch. 10 - Prob. 10.4BECh. 10 - Prob. 10.5BECh. 10 - Recognize preferred stock features (LO103) Match...Ch. 10 - Determine the amount of preferred Stock dividends...Ch. 10 - Prob. 10.8BECh. 10 - Prob. 10.9BECh. 10 - Record cash dividends (LO105) Divine Apparel has...Ch. 10 - Prob. 10.11BECh. 10 - Prob. 10.12BECh. 10 - Indicate effects on total stockholders equity...Ch. 10 - Prepare the stockholders equity section (LO107)...Ch. 10 - Prob. 10.15BECh. 10 - Prob. 10.1ECh. 10 - Prob. 10.2ECh. 10 - Prob. 10.3ECh. 10 - Prob. 10.4ECh. 10 - Record common stock, preferred stock, and dividend...Ch. 10 - Prob. 10.6ECh. 10 - Prob. 10.7ECh. 10 - Record cash dividends (LO105) On March 15,...Ch. 10 - Prob. 10.9ECh. 10 - Record stock dividends and stock splits (LO106) On...Ch. 10 - Prob. 10.11ECh. 10 - Prob. 10.12ECh. 10 - Indicate effects on total stockholders equity...Ch. 10 - Prob. 10.14ECh. 10 - Prob. 10.15ECh. 10 - Calculate and analyze ratios (LO108) Financial...Ch. 10 - (LO 102, 104, 105, 108) On January 1, 2018, the...Ch. 10 - Prob. 10.1APCh. 10 - Prob. 10.2APCh. 10 - Indicate effect of stock dividends and stock...Ch. 10 - Prob. 10.4APCh. 10 - Understand stockholders equity and the statement...Ch. 10 - Record equity transactions and prepare the...Ch. 10 - Prob. 10.7APCh. 10 - Match terms with their definitions (LO101 to 108)...Ch. 10 - Record equity transactions and indicate the effect...Ch. 10 - Prob. 10.3BPCh. 10 - Prob. 10.4BPCh. 10 - Prob. 10.5BPCh. 10 - Record equity transactions and prepare the...Ch. 10 - Prob. 10.7BPCh. 10 - Prob. 10.1APCPCh. 10 - Financial Analysis American Eagle Outfitters, Inc....Ch. 10 - Prob. 10.3APFACh. 10 - Comparative Analysis Buckle American Eagle...Ch. 10 - Ethics Put yourself in the shoes of a company...Ch. 10 - Written Communication Preferred stock has...Ch. 10 - Earnings Management Renegade Clothing is...
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