Chapter 13, Problem 1BTN

1)

To determine

Introduction:

Classes of shares:

• Shares provide partial ownership or a “share” of a corporation. There are two primary classes of shares − Equity Shares and Preference Shares.

• Equity shares are the class of shares which carry voting rights and equity share holders are the true owners of the company as in the event of dissolution, equity shareholders get last preference in clearing the amounts invested and there is no guarantee of profits will be debited by dividend on an annual basis.
• Preference shares are the class of shares which do not carry voting rights and in the event of dissolution, preference shareholders get first preference in clearing the amounts invested and there is usually guarantee of profits will be debited by dividend on an annual basis.Convertible Preference shares are preference shares that carry the option to be converted into equity shares after certain duration.

To Determine:

• Shares outstanding on September 28 2013 and September 29, 2012.

• Comparison with weighted average shares outstanding on September 28 2013 and September 29, 2012.

Answer to Problem 1BTN

Solution:

• Shares outstanding on September 28 2013 are 899,213 and Weighted average shares outstanding on September 28 2013 are 925,331.

• Shares outstanding on September 29, 2012 are 939,208 and Weighted average shares outstanding September 29, 2012 are 934,818.

Explanation of Solution

• Equity shares are a class of shares which carry voting rights. Equity shareholders get last preference in clearing the amounts invested and there is usually no guarantee of profits / dividend on an annual basis.

• Weighted average shares outstanding are calculated to include the effect of potentially dilutive securities and the weighted average shares outstanding are used for ratio analysis as well as for calculation of key metrics such as earnings per share.

• Potentially dilutive securities are outstanding stock options and shares pertaining to the Company’s employee stock option plan.

Conclusion

Hence the Shares outstanding on September 28 2013 and September 29, 2012 have been listed and comparison with weighted average shares outstanding on September 28 2013 and September 29, 2012 has also been done.

2)

To determine

Introduction:

Classes of shares:

• Shares provide partial ownership or a “share” of a corporation. There are two primary classes of shares − Equity Shares and Preference Shares.

• Equity shares are the class of shares which carry voting rights and equity share holders are the true owners of the company as in the event of dissolution, equity shareholders get last preference in clearing the amounts invested and there is no guarantee of profits will be debited by dividend on an annual basis.
• Preference shares are the class of shares which do not carry voting rights and in the event of dissolution, preference shareholders get first preference in clearing the amounts invested and there is usually guarantee of profits will be debited by dividend on an annual basis. Convertible Preference shares are preference shares that carry the option to be converted into equity shares after certain duration.

To Determine:

Book value of common stock

Answer to Problem 1BTN

Solution:

Book value of common stock is $123,549 Million.

Explanation of Solution

• Equity shares are a class of shares which carry voting rights. Equity shareholders get last preference in clearing the amounts invested and there is usually no guarantee of profits / dividend on an annual basis.
• Book value of the shares is that portion of shareholder’s equity that is attributable to equity share holders. It is calculated as Value of common stock plus retained Earnings and Comprehensive Income / (Losses) less value of preferred stock if any.

• For the year 2013, Value of common stock is $19,764 Million, Retained Earnings is $104,256, Comprehensive Income / (Losses) are ($471) Million and value of preferred stock is zero. Thus the book value adds up to $123,549 Million.

Conclusion

Hence Book value of equity is calculated for the year ending September 28, 2013.

3)

To determine

Introduction:

Classes of shares:

• Shares provide partial ownership or a “share” of a corporation. There are two primary classes of shares − Equity Shares and Preference Shares.

• Equity shares are the class of shares which carry voting rights and equity share holders are the true owners of the company as in the event of dissolution, equity shareholders get last preference in clearing the amounts invested and there is no guarantee of profits will be debited by dividend on an annual basis.
• Preference shares are the class of shares which do not carry voting rights and in the event of dissolution, preference shareholders get first preference in clearing the amounts invested and there is usually guarantee of profits will be debited by dividend on an annual basis. Convertible Preference shares are preference shares that carry the option to be converted into equity shares after certain duration

Dividends:

• Dividends are periodic distribution of profits to shareholders of common stock. They are declared and distributed to shareholders in a frequency as decided by the management.

• Dividends help in retaining investor interest and are necessary as shareholders expect returns from their investments.

• Dividends are a capital expense and are reduced from the retained earnings account and do not appear in the Income summary.

To Determine:

Amount of cash dividends paid for years ended September 28, 2013 and September 29, 2012

Answer to Problem 1BTN

Solution:

• Amount of cash dividends paid for year ended September 28, 2013 is $10.5 Billion.

• Amount of cash dividends paid for year ended September 29, 2012 is $2.5 Billion.

Explanation of Solution

• Dividends are profits redistributed to the shareholders on a periodic basis. The cash dividends form part of the financing activities of the business and are accounted for in the cash flows from financing activities.

• Amount of cash dividends paid for years ended September 28, 2013 is $10.5 Billion and for the year ended September 29, 2012 is $2.5 Billion. The year on year increase in dividends is $8 Billion and value of dividends of 2013 is almost 5 times the dividends of 2012.

• Increase in the value of dividends paid means a higher profit distribution to the shareholders and signals healthy financial growth of the company owing to increased turnover and higher profits.

Conclusion

Hence the amount of cash dividends paid for years ended September 28, 2013 and September 29, 2012 has been identified.

4)

To determine

Introduction:

Earnings per share:

• Earnings per share refer to a measure of the earnings available to shareholders of common stock after preferred stock dividend obligations have been fulfilled.

• The Earnings per share is the amount of net income less preferred dividend divided by number of shares of common stock outstanding outstanding.

  $\text{Earnings per share=}\frac{\text{Net Income - Preferred Dividend}}{\text{Number of Common Shares Outstanding}}$

To Determine:

Earnings per share for the years ended 2013, 2012 and 2011.

Answer to Problem 1BTN

Solution:

Particulars	2013	2012	2011
Earnings per share (Basic)	$ 40.03	$ 44.64	$ 28.05

Explanation of Solution

• Earnings per share have increased over a period of 3 years to $ 40.03 in 2013 from $ 28.05 in 2011. The year on year increase over a period of 3 years is 43%
[ $\text{(\$ 40}\text{.03 - \$ 28}\text{.05) / \$ 28}\text{.05 x 100}$ ]

• The increase over a period of 3 years indicates higher earnings available to the shareholders and signals healthy financial growth of the company owing to increased turnover and higher profits.

• The growth is uneven as the Earnings per share for 2012 increase to $44.64 from $ 28.05 in 2011 and then fall to $ 40.03 in 2013.

• The fluctuation in the Earnings per share is reflective of the changes in the turnover in the reporting periods.

Conclusion

Hence Earnings per share for the years ended 2013, 2012 and 2011 have been identified and analyzed.

5)

To determine

Introduction:

Classes of shares:

• Shares provide partial ownership or a “share” of a corporation. There are two primary classes of shares − Equity Shares and Preference Shares.

• Equity shares are the class of shares which carry voting rights and equity share holders are the true owners of the company as in the event of dissolution, equity shareholders get last preference in clearing the amounts invested and there is no guarantee of profits will be debited by dividend on an annual basis.
• Preference shares are the class of shares which do not carry voting rights and in the event of dissolution, preference shareholders get first preference in clearing the amounts invested and there is usually guarantee of profits will be debited by dividend on an annual basis. Convertible Preference shares are preference shares that carry the option to be converted into equity shares after certain duration

To Determine:

Value of treasury stock if any for the years ended September 28, 2013 and September 29, 2012.

Answer to Problem 1BTN

Solution:

• Value of treasury stock if any for the year ended September 28, 2013 is $22,950 Million

• Value of treasury stock if any for the year ended September 29, 2012 is Nil

Explanation of Solution

• When a company buys back its own shares, such shares are called Treasury Stock. They are an asset and are used to increase the ownership in company and reduce excess cash reserves.

• Treasury Stock is recorded as a reduction from the total of the paid in capital and retained earnings to arrive at the stockholders equity for the year.

• A clear reading of the statement of changes stockholders’ equity for the years ended September 28, 2013 and September 29, 2012 indicates that the purchase of common stock for the year ended September 28, 2013 is 46,976 Thousand shares with value of $22,950 Million with no corresponding amounts for the year ended September 29, 2012.

• The value is deducted from the retained earnings for the year ended 2013 to arrive at the final figure of the stockholders’ equity.

Conclusion

Hence the value of treasury stock if any for the years ended September 28, 2013 and September 29, 2012 has been determined.

6)

To determine

Introduction:

Classes of shares:

• Shares provide partial ownership or a “share” of a corporation. There are two primary classes of shares − Equity Shares and Preference Shares.

• Equity shares are the class of shares which carry voting rights and equity share holders are the true owners of the company as in the event of dissolution, equity shareholders get last preference in clearing the amounts invested and there is no guarantee of profits will be debited by dividend on an annual basis.
• Preference shares are the class of shares which do not carry voting rights and in the event of dissolution, preference shareholders get first preference in clearing the amounts invested and there is usually guarantee of profits will be debited by dividend on an annual basis. Convertible Preference shares are preference shares that carry the option to be converted into equity shares after certain duration.

Dividends:

• Dividends are periodic distribution of profits to shareholders of common stock. They are declared and distributed to shareholders in a frequency as decided by the management.

• Dividends help in retaining investor interest and are necessary as shareholders expect returns from their investments.

• Dividends are a capital expense and are reduced from the retained earnings account and do not appear in the Income summary.

To Determine:

• Shares outstanding on September 27,2014 and comparison with September 28,2013

• Dividends paid on September 27,2014 and comparison with September 28,2013

Answer to Problem 1BTN

Solution:

• Shares outstanding on September 27, 2014 are 5,866,161 and outstanding on September 28, 2013 are 6,294,494

• Dividends paid on September 27, 2014 were $11,126 Million and on September 28, 2013 are $10,564 Million.

Explanation of Solution

• Equity shares are a class of shares which carry voting rights. Equity shareholders get last preference in clearing the amounts invested and there is usually no guarantee of profits / dividend on an annual basis.

• Shares outstanding on September 27, 2014 are 5,866,161 and outstanding on September 28, 2013 are 6,294,494. The reduction in the number of shares outstanding can be attributed to the repurchase of common stock i.e. treasury stock repurchased.

• Dividends are profits redistributed to the shareholders on a periodic basis. The cash dividends form part of the financing activities of the business and are accounted for in the cash flows from financing activities.

• Amount of cash dividends paid for years ended September 27, 2014 is $ 11.12 Billion and on September 28, 2013 is $10.5 Billion. The year on year increase in dividends is $0.7 Billion

• Increase in the value of dividends paid means a higher profit distribution to the shareholders and signals healthy financial growth of the company owing to increased turnover and higher profits.

• Increase in dividends paid despite reduction in the overall number shares outstanding indicates that the dividends per share declared in the subsequent years were higher than those of the previous years and indicates increased earnings for the shareholders of common stock.

Conclusion

Hence the shares outstanding and the dividends declared for the year ended September 27, 2014 have been listed.