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Chapter 13: Q21RQ (page 707)
What is a prior-period adjustment?
A prior-period adjustment is a amendment to retained earnings for an error in an prior period.
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Computing earnings per share, price/earnings ratio, and rate of return on common stockholders’ equity
Bianchi Company reported these figures for 2018 and 2017:
2018 2017
Income Statement—partial:
Net Income \( 34,380 \) 18,000
Dec. 31, 2018 Dec. 31, 2017
Balance Sheet—partial:
Total Assets \( 285,000 \) 280,000
Paid-In Capital:
Preferred Stock—11%, \(9 Par Value; 60,000 shares
authorized, 12,000 shares issued and outstanding
\) 108,000 \( 108,000
Common Stock—\)2 Par Value; 60,000 shares
authorized, 50,000 shares issued and outstanding
100,000 100,000
Paid-In Capital in Excess of Par—Common 14,000 14,000
Retained Earnings 60,500 38,000
Total Stockholders’ Equity \( 282,500 \) 260,000
Requirements
2. Compute Bianchi Company’s price/earnings ratio for 2018. Assume the company’s market price per share of common stock is $9. Round to two decimals.
Identifying advantages and disadvantages of a corporation
Following is a list of advantages and disadvantages of the corporate form of business. Identify each quality as either an advantage or a disadvantage.
g. Government regulation is expensive
Eates Corp. issued 8,000 shares of no-par common stock for $13 per share.
Requirements
2. Which type of stock results in more total paid-in capital?
Organizing a corporation and issuing stock
Montel and Jeremy are opening a paint store. There are no competing paint stores in the area. They must decide how to organize the business. They anticipate profits of $350,000 the first year, with the ability to sell franchises in the future. Although they have enough to start the business now as a partnership, cash flow will be an issue as they grow. They feel the corporate form of operation will be best for the long term. They seek your advice.
Requirements
2. Would you recommend they initially issue preferred or common stock?Why?
Rocky Corporation’s accounting records include the following items, listed in no particular order, at December 31, 2018:
Other Income and (Expenses) \( (6,000) Cost of Goods Sold \) 29,200
Net Sales Revenue 70,800 Operating Expenses 22,000
Gain on Discontinued Operations 4,800
The income tax rate for Rocky Corporation is 30%. Prepare Rocky’s income statement for the year ended December 31, 2018.
Omit earnings per share. Use a multi-step format
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