Fundamentals of Financial Accounting 3e by Phillips, Libby, and Libby.

Fundamentals of Financial Accounting 3e by Phillips, Libby, and Libby.
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Reporting and Interpreting Stockholders’ Equity
Chapter 11 Reporting and Interpreting Stockholders’ Equity PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Fred Phillips, Ph.D., CA Chapter 11: Reporting and Interpreting Stockholders’ Equity

Explain the role of stock in financing a corporation
Learning Objective 1 Explain the role of stock in financing a corporation Learning objective number 1 is to explain the role of stock in financing a corporation. 11-3

Corporate Ownership The major advantage of the corporate form of business is the ease of raising capital as both large and small investors can participate in corporate ownership. Simple to become an owner Easy to transfer ownership Provides limited liability Part I The corporate form of organization has several advantages. The major advantage is the ease of raising large amounts of money because both large and small investors can participate in corporate ownership. It is simple to become an owner of corporate shares of stock and it is just as simple to sell the shares. Organized exchanges, such as the New York Stock Exchange, maintain markets in which shares in thousands of companies are bought and sold each business day. Stockholders’ losses are limited to the amount invested in the corporation. Corporate creditors cannot make claims on the personal assets of shareholders to satisfy corporate debt. Part II Corporations are entities created by law that exist separately from their owners and that have rights and privileges. As separate entities, corporations can: Own assets. Incur liabilities. Sue and be sued. Enter into contracts. Stockholders are not agents of the corporation and cannot enter into contracts on the corporation’s behalf. Because a corporation is a separate legal entity, it can Own assets. Incur liabilities. Sue and be sued. Enter into contracts. 11-4

Corporate Ownership Voting rights. Dividends. Residual claims.
Stockholder Benefits Dividends. Residual claims. Part I In addition to voting on important issues at annual meetings, stockholders have other benefits. Part II Stockholders have the right to receive dividends when declared by the board of directors. Part III In the event of liquidation, stockholders share, according to their percentage ownership, in any remaining assets after creditors are paid. Part IV Existing shareholders may be given the first chance to buy newly issued shares of stock before it is offered to others. Preemptive rights. 11-5

Elected by shareholders Appointed by directors
Corporate Ownership Elected by shareholders Appointed by directors Ultimate control of a corporation rests with the stockholders. At their annual meeting, stockholders elect the Board of Directors and vote on important management issues facing the company. The members of the board of directors hire the executive officers of the corporation. Finally, officers of the corporation empower others to hire needed employees. 11-6

Equity Versus Debt Financing
Advantages of equity and debt financing. Advantages of equity Equity does not have to be repaid. Dividends are optional. Advantages of debt Interest on debt is tax deductible. Debt does not change stockholder control. Part I Equity financing has some advantages when compared to debt financing. First, equity financing does not have to be repaid as does debt. Second cash dividends to stockholders are optional, whereas interest payments on debt are mandatory. Part II However, debt financing also has some advantages. First, interest payments to creditors are tax deductible, but dividend payments to stockholders are not. Second, selling additional shares of stock can dilute the ownership percentage of current stockholders, but additional debt does not change stockholder control. 11-7

Explain and analyze common stock transactions.
Learning Objective 2 Explain and analyze common stock transactions. Learning objective number 2 is to explain and analyze common stock transactions. 11-8

Common Stock Transactions
Two primary sources of Stockholders’ Equity Contributed Capital Common Stock Additional Paid-in Capital Retained Earnings Part I Corporations have two primary sources of equity. The first is Contributed Capital. The two accounts in Contributed Capital, Common Stock and Additional Paid-in Capital, represent amounts that shareholders have invested by buying shares of stock from the company. Part II The second source of equity is Retained Earnings. The Retained Earnings account reports the cumulative amount of net income the corporation has earned since its organization less the cumulative amount of dividends declared since organization. This is the portion of the net income that has been reinvested in the business rather than distributed to the owners in dividends. 11-9

Authorization, Issuance, and Repurchase of Stock
Authorized Shares Outstanding shares are issued shares that are owned by stockholders. Issued shares are authorized shares of stock that have been distributed to stockholders. Unissued shares of stock are shares that have never been distributed to stockholders. Unissued Shares Treasury Outstanding The maximum number of shares of capital stock that can be issued to the public. Issued Shares Part I There are several terms related to stock that we need to understand. Authorized shares are the maximum number of shares of stock that can be issued to the public. The number of authorized shares is identified in the corporate charter of the corporation that is issued by the state. Part II Authorized shares can be classified as either issued or unissued. Issued shares are authorized shares of stock that have been distributed to stockholders. Unissued shares are authorized shares of stock that have never been issued to stockholders. Part III Issued shares can be classified as either outstanding shares or treasury shares. Part IV Outstanding shares are shares that are currently owned by stockholders. Part V Treasury shares are shares that were once owned by stockholders but the corporation repurchased the shares in the stock market. Now, the corporation is the owner of those shares. Treasury shares are issued shares that have been reacquired by the corporation. 11-10

Authorization, Issuance, and Repurchase of Stock
Here you see an example of the Stockholders’ Equity portion of National Beverage Corporation’s Balance Sheet. The three accounts, Common Stock, Additional Paid-in Capital, and Retained Earnings, are shown. Preferred Stock is a category of stock with special rights that we will discuss later. Notice the amount of detail disclosed for the Common Stock account. Par value is one cent per share. It is not unusual for par values to be as low as one cent per share. We will discuss the concept of par value later. The corporate charter authorizes a total of 75,000,000 shares of stock that can be issued, 50,000,000 of which have been issued. Of those shares issued, shares costing $18,000,000 have been reacquired by the company and are shown as treasury stock. 11-11

Par value is typically a very nominal amount such a $0.01 per share.
Stock Authorization Par value is typically a very nominal amount such a $0.01 per share. Par value is an arbitrary amount assigned to each share of stock when it is authorized. Market price is the amount that each share of stock will sell for in the market.  Part I Common stock normally has a par value which is usually a very small amount, such as one cent per share. Part II Par value is an arbitrary amount assigned to each share of stock in the corporate charter. Par value is not related in any manner to market value which is the selling price of a share of stock. 11-12

Some states do not require a par value to be stated in the charter.
Stock Authorization Some states do not require a par value to be stated in the charter. No-par Stock In addition to par value stock, some states permit no-par value common stock. 11-13

Stock Issuance Initial public offering (IPO)
The first time a corporation issues stock to the public. Seasoned new issue Subsequent issues of new stock to the public. Part I At the initial public offering, shares of stock are issued to the public for the first time, usually through major securities brokerage firms with retail offices in cities across the country. Part II At a later date, the company may wish to raise additional capital with another issue of stock to the public. This is referred to as a seasoned new issue. National Beverage issues stock. 11-14

Most issues of stock to the public are cash transactions.
Stock Issuance Most issues of stock to the public are cash transactions. National Beverage issued 100,000 shares of $0.01 par value common stock for $10 per share. 1 Analyze Part I When par value stock is issued for cash, the common stock account is credited for the par value of the stock sold. Remember that par value and market value are not related. The difference between the par value of the stock and the market value of the stock is credited to additional paid-in capital. Let’s record the entry for National Beverage Corp. for the issuance of 100,000 shares of one cent per share par value stock, sold for $10 per share in cash. Part II The transaction would affect the accounting equation by increasing assets (Cash) by $1,000,000 and increasing Stockholders’ Equity by $1,000,000 (Common Stock $1,000 and Additional Paid-in-Capital $999,000. Part III We debit cash for the market value of the stock issued: 100,000 shares times $10 per share. Next, we credit common stock for the total par value of the shares issued: 100,000 shares times one cent per share. And last, we credit additional paid-in capital for the excess of market value over par: $999,000. Record 2 11-15

Stock Exchanged between Investors
Transactions between two investors do not affect the corporation’s accounting records. I’d like to buy 100 shares of National Beverage stock. I’d like to sell 100 shares of National Beverage stock. Once shares of stock are owned by the public, they may be bought and sold in the open market. Such transactions do not involve the company or its accounting records. The millions of shares that are bought and sold on the New York Stock exchange each business day are examples of this type of transaction. 11-16

Repurchase of Stock A corporation repurchases its stock to:
Send a signal that the company believes its stock is undervalued. Obtain shares to reissue for the purchase of other companies. Obtain shares to reissue to employees as part of stock purchase or stock option plans. Corporations often buy their own stock back in the market. They do this because they believe the share price is undervalued, to increase their shares needed to use in the acquisition of another company, and to increase shares for use in employee stock option and stock purchase programs. Treasury Stock 11-17

Repurchase of Stock National Beverage repurchases its own stock
(Treasury stock) Stockholders Employee Employee compensation package includes salary plus stock options. Stock options allow employees to purchase stock from the corporation at a fraction of the stock’s market price. Part I National Beverage repurchases its own shares from current stockholders. The repurchased shares are called treasury stock. Part II At a later date, National Beverage plans to use the treasury stock as part of an employee compensation plan. National Beverage grants options to employees. Part III Stock options will allow employees to purchase the shares of the company’s stock at a less than the stock’s market price. 11-18

No voting or dividend rights
Repurchase of Stock Treasury stock is not an asset. No voting or dividend rights Contra equity account Part I Dividends are not paid on treasury stock, and a corporation holding its own stock cannot vote using these shares at the annual meeting. Part II Treasury stock is not an asset. It is reported in the Stockholders’ Equity portion of the balance sheet as a reduction from total equity. Part III Treasury stock is usually recorded at the cost to purchase it, and the total cost of all shares of treasury stock held by the company is the amount reported as a reduction in Stockholders’ Equity. When stock is reacquired, the corporation records the treasury stock at cost. 11-19

Repurchase of Stock National Beverage reacquired 50,000 shares of its common stock at $25 per share. 1 Analyze Part I National Beverage purchased 50,000 of its own shares in the market for $25 per share, or $1,250,000. Part II The transaction would affect the accounting equation by decreasing assets (Cash) by $1,250,000 and decreasing Stockholders’ Equity (increasing Treasury Stock) by $1,250,000. Part III The entry includes a debit to treasury stock and a credit to cash for $1,250,000, the amount of the purchase. The treasury stock would be reported on the balance sheet in the equity section as a reduction from total equity. Record 2 11-20

Reissuance of Treasury Stock
National Beverage reissued 5,000 shares of the Treasury Stock at $26 per share. 1 Analyze Record 2 Part I Later, National Beverage reissued five 5,000 shares of the treasury stock for $26 per share. Remember that the original cost of the treasury stock was $25 per share. Part II The transaction would affect the accounting equation by increasing assets (Cash) by $130,000 and increasing Stockholders’ Equity by $130,000 (decreasing Treasury Stock by $125,000 and increasing Additional Paid-in-Capital by $5,000. Part III The entry would include a debit to cash for $130,000 and a credit to treasury stock for $125,000. The credit to treasury stock is the original cost of $25 per share times the 5,000 shares sold. The difference between the selling price and the cost of the treasury stock is credited to additional paid-in capital. In this example that amount is $5,000. No profit or loss is recognized on treasury stock transactions. No profit or loss is recognized on treasury stock transactions. 11-21

Learning Objective 3 Explain and analyze cash dividends, stock dividends, and stock split transactions. Learning objective number 3 is to explain and analyze cash dividends, stock dividends, and stock split transactions. 11-22

Dividends on Common Stock
Declared by board of directors. Not legally required. Creates liability at declaration. Requires sufficient Retained Earnings and Cash. Cash dividends are declared by the board of directors. There is no legal obligation to declare a cash dividend, but once declared, there is a legal obligation to pay the dividend. Most corporations that pay cash dividends pay them quarterly. To pay a cash dividend, a corporation must have two things:  Sufficient retained earnings to absorb the dividend without going negative and  Enough cash to pay the dividend. 11-23

Restrictions on Retained Earnings
If I loan your company $1,000,000, I will want you to restrict your retained earnings to limit dividend payments. Retained earnings can have legal or contractual restrictions. In most states, the corporate charters will not allow companies to purchase treasury stock in excess of the balance in retained earnings. Some loan agreements place restrictions on how much dividends can be, based on the balance in retained earnings. Restrictions on retained earnings are generally disclosed in the notes to the financial statements. Loan agreements can include restrictions on paying dividends below a certain amount of retained earnings. 11-24

Dividends Dates There are three important dates to remember when discussing dividends:  The declaration date.  The date of record.  The date of payment. The date of declaration is the date the directors declare the dividend. At this time a liability is created and must be recorded. The date of record is important because it is the date when the corporation determines the owners of record who will receive the dividend. No entry is required in the accounting records on this date. The date of payment is the date the corporation pays the dividend to the stockholders who owned the stock on the record date. 11-25

Dividends Dates National Beverage declares an $0.80 dividend on each share of its 46,000,000 shares of common stock outstanding. 1 Analyze Part I National Beverage declares an $0.80 dividend on each of its 46,000,000 shares of common stock outstanding. Part II. The transaction would affect the accounting equation by increasing Liabilities (Dividends Payable) by $36,800,000 and decreasing Stockholders’ Equity by $36,800,000 (increasing Dividends Declared). Part III The entry at the date of declaration includes a debit to Dividends Declared and a credit to Dividends Payable for $36,800,000. Dividends Declared is a temporary account that is closed to Retained Earnings at the end of the year. Record 2 11-26

Dividends Dates National Beverage paid the previously declared $0.80 dividend on its shares of common stock outstanding. 1 Analyze Part I National Beverage paid the previously declared $0.80 dividend on its 46,000,000 shares of common stock outstanding. Part II The transaction would affect the accounting equation by decreasing Liabilities (Dividends Payable) by $36,800,000 and decreasing Assets (Cash) by $36,800,000. Part III The entry on the date of payment includes a debit to Dividends Payable and credit to Cash for $36,800,000, the total amount of cash paid to the owners of record. Record 2 11-27

Distribution of additional shares of stock to stockholders.
Stock Dividends Distribution of additional shares of stock to stockholders. No change in total stockholders’ equity. All stockholders retain same percentage ownership. No change in par values. Part I A stock dividend is a distribution of additional shares of stock to stockholders. All stockholders retain the same percentage ownership. The stockholders have more shares of stock representing the same ownership as they had before the stock dividend. Part II There is no change in total stockholders’ equity. Part III Par value per share does not change. Part IV Corporations issue stock dividends to: Remind stockholders of the accumulating wealth in the company. Reduce the market price per share of stock to make the shares more affordable for investors to purchase. Signal that the management expects strong financial performance in the future. Corporations issue stock dividends to: Remind stockholders of the accumulating wealth in the company. Reduce the market price per share of stock. Signal that the company expects strong financial performance in the future. 11-28

Record at current market value of stock. Record at par value of stock.
Stock Dividends Small Large Stock dividend < 20 – 25% Stock dividend > 20 – 25% Record at current market value of stock. Record at par value of stock. Part I A stock dividend can be classified as small or large. A small stock dividend is a distribution of stock that is less than percent of the outstanding shares. Small stock dividends are recorded at the market value of the stock. Part II A large stock dividend is a distribution of stock that is greater than percent of the outstanding shares. Large stock dividends are recorded at the par value of the stock. Let’s look at the entry to record a large stock dividend. The journal entry moves an amount from Retained Earnings to other equity accounts. 11-29

Stock Dividends National Beverage issued a 20 percent stock dividend on 38,000,000 outstanding shares of its $0.01 par value common stock and accounted for it as a large stock dividend. 1 Analyze Part I National Beverage issued a 20 percent stock dividend on 38,000,000 outstanding shares of its $0.01 par value common stock and accounted for it as a large stock dividend. Part II The transaction would affect the accounting equation by decreasing Retained Earnings by $76,000 and increasing Common Stock by $76, there is no change in total Stockholders’ Equity. Part III National Beverage would debit Retained Earnings and credit common Stock for the number of shares issued times the par value of the stock. Twenty percent of 38,000,000 shares is 7,600,000 shares, so 7,600,000 shares times the $0.01 par value per share is $76,000. Record 2 11-30

A stock split creates more pieces of the same pie.
Stock Splits An increase in the number of shares and a corresponding decrease in par value per share. Retained earnings is not affected. A stock split creates more pieces of the same pie. Assume that a corporation had 5,000 shares of $1 par value common stock outstanding before a 2–for–1 stock split. Part I A stock split is the distribution of additional shares of stock to stockholders according to their percent ownership. When a stock split occurs, the corporation calls in the outstanding shares and issues new shares of stock. In the process of a stock split, the par value of the stock changes. Each shareholder has the same percentage ownership of the company after the split as before the split. So we sometimes say that a stock split creates more, but smaller, pieces of the same pie. Part II Before the two-for-one split, this company had 5,000 shares of $1 per share par value stock outstanding. Part III After the two-for-one split, the number of shares doubled and the par value was cut in half. Notice that an accounting entry is not required, and that retained earnings is not reduced. In many respects a 100 percent stock dividend and a two-for-one stock split result in similar impacts to the price per share in the stock market. The stock split usually requires more administrative tasks to call in and reissue stock certificates. Increase Decrease No Change 11-31

Comparison of Distributions to Stockholders
Part I Here you see the components of the Stockholders’ Equity section of a corporate Balance Sheet before showing the effects of a 2-for-1 stock split, a 100 percent stock dividend, and a $10,000 cash dividend. Part II The 2-for-1 stock split doubles the number of shares outstanding from 1,000,000 to 2,000,000 and reduces the par value per share from one cent to one-half cent, but has no effect on any of the account balances in Stockholders’ Equity. Part III The 100 percent stock dividend doubles the number of shares outstanding from 1,000,000 to 2,000,000, increases the Common Stock account from $10,000 to $20,000, and reduces Retained Earnings from $650,000 to $640,000. Part IV Notice that the cash dividend is the only distribution that decreases Total Stockholders’ Equity because it is the only one of the three that distributes the company’s resources to stockholders. 11-32

Learning Objective 4 Describe the characteristics of preferred stock and analyze transactions affecting preferred stock. Learning objective number 4 is to describe the characteristics of preferred stock and analyze transactions affecting preferred stock. 11-33

Preferred Stock Issuance
Priority over common stock Preferred Stock Usually has a fixed dividend rate Usually has no voting rights National Beverage issued 10,000 shares of its $1 par value preferred stock for $5 per share. 1 Analyze Part I Preferred stock is a separate class of stock that typically has priority over common stock in dividend distributions and distribution of assets in a liquidation, and is therefore less risky. Preferred stock usually has a stated dividend that is expressed as a percentage of its par value. Corporations may issue preferred stock to be able to raise needed capital without sacrificing control since preferred stock has no voting rights. Issuing preferred stock is a way to boost return to common stockholders. It is also a way to increase equity in the company if the common stock is perceived as too risky or has a lower than expected return. Part II National Beverage issued 10,000 shares of its $1 par value preferred stock for $5 per share. Part III The transaction would affect the accounting equation by increasing Assets (Cash) by $50,000 and increasing Stockholders’ Equity by $50,000 (Preferred Stock by $10,000 and Additional Paid-in Capital-Preferred by $40,000). Part IV To record the transaction, we debit Cash for the market value of the stock issued: 10,000 shares times $5 per share. Next, we credit Preferred Stock for the total par value of the shares sold: 10,000 shares times $1 per share. And last, we credit Additional Paid-in Capital-Preferred for the excess of market value over par: $40,000. Record 2 11-34

Preferred Stock Dividends
Current Dividend Preference: The current preferred dividends must be paid before paying any dividends to common stock. Cumulative Dividend Preference: Any unpaid dividends from previous years (dividends in arrears) must be paid before common dividends are paid. Part I Preferred stock has a current dividend preference when compared to common stock. Current preferred dividends must be paid to preferred stockholders before any dividends are paid to common stockholders. Cumulative preferred stockholders have the right to be paid both the current and all prior periods’ unpaid dividends before any dividends are paid to common stockholders. When the preferred stock is cumulative and the directors do not declare a dividend to preferred stockholders, the unpaid dividend is called a dividend in arrears and must be disclosed in the financial statements. Part II Noncumulative preferred stock has no rights to prior periods’ dividends if they were not declared in those prior periods. If the preferred stock is noncumulative, any dividends not declared in previous years are lost permanently. 11-35

In addition to its common stock, National Beverage has $1 par value cumulative preferred stock with a 7 percent dividend rate. Assume 100,000 of these shares are outstanding, one year of dividends are in arrears, and the board of directors just declared total dividends of $400,000. How much will each class of stock receive? In addition to its common stock, National Beverage has $1 par value cumulative preferred stock with a 7 percent dividend rate. Assume 100,000 of these shares are outstanding, one year of dividends are in arrears, and the board of directors just declared total dividends of $400,000. How much will each class of stock receive? 11-36

Part I Recall that preferred stockholders receive any declared dividends before common stockholders. Cumulative preferred stockholders have rights to the missed dividends of last year in addition to the current year’s dividends. First, compute the amount of dividends in arrears on the preferred stock. This amount will be paid before any other dividend consideration. Part II The preferred stockholders first get a distribution of $7,000 for the dividends in arrears from last year. The $7,000 dividend is calculated as follows: one dollar par value times 7 percent times 100,000 shares. Next, let’s calculate the preferred dividend for the current year. It must be paid before common stock holders receive a dividend. Part III Preferred stockholders get another $7,000 for the current year’s dividend. This $7,000 dividend is calculated the same way as the $7,000 in arrears from last year: one dollar par value times 7 percent times 100,000 shares. Since $400,000 in dividends were declared, and the cumulative preferred stockholders have received $14,000, common stockholders receive the remaining $386,000 in dividends. 11-37

Retained Earnings Total cumulative amount of reported net income less any net losses and dividends declared since the company started operating. Part I Retained Earnings represents a corporation’s total earnings that have been retained in the business (rather than being distributed to stockholders). The balance in retained earnings increases each year that a company reports net income, and decreases each year that a company reports a net loss or declares cash or stock dividends. A negative balance in retained earnings is referred to as an Accumulated Deficit. Part II Baker Company incurred a loss of $120,000 in 2009 that resulted in an Accumulated Deficit in Retained Earnings. Baker Company incurred a loss of $120,000 in 2009 that resulted in an Accumulated Deficit in Retained Earnings. 11-38

Learning Objective 5 Analyze the earnings per share (EPS), return on equity (ROE), and price/earnings (P/E) ratios. Learning objective number 5 is to analyze the earnings per share (EPS), return on equity (ROE), and price/earnings (P/E) ratios. 11-39

Earnings Per Share (EPS)
Earnings per share is probably the single most widely watched financial ratio. Net Income Average Number of Common Shares Outstanding EPS = National Beverage’s income for 2008 was $22,500,000 and the average number of shares outstanding during the year was 45,900,000. Part I Earnings per share is one of the most widely used ratios. It is calculated by dividing Net Income by the average number of common shares outstanding. Part II National Beverage’s income for 2008 was $22,500,000 and the average number of shares outstanding during the year was 45,900,000. Part III National Beverage earned $0.49 for each share of common stock outstanding. Earnings per share is calculated by dividing Net Income of $22,500,000 by the 45,900,000 shares of Common Stock. $22,500,000 45,900,000 Shares EPS = = $0.49 per share 11-40

Return on Equity (ROE) Return on equity is the amount earned for each dollar invested by stockholders. Net Income Average Stockholders’ Equity ROE = National Beverage’s income for 2008 was $22,500,000 and the average Stockholders’ Equity was $151,000,000. Part I Another widely used financial ratio is return on equity, which tells us the amount earned for each dollar invested by stockholders. Return on equity is calculated by dividing Net Income by average Stockholders’ Equity. Part II National Beverage’s income for 2008 was $22,500,000 and the average Stockholder’s Equity was $151,000,000. Part III Return on equity for National Beverage is 14.9 percent, calculated by dividing net income of $22,500,000 by average stockholders’ equity of $151,000,000. Return on Equity tells us that National Beverage Corporation earned 14.9 cents for each dollar of its Stockholders’ Equity. $22,500,000 $151,000,000 ROE = = percent 11-41

Price/Earnings (P/E) Ratio
The P/E ratio is a measure of the value that investors place on a company’s common stock. Current Stock Price (per share) Earnings Per Share (annual) P/E = National Beverage’s stock price was $7.74 when the company reported its 2008 EPS of $0.49. Part I The P/E ratio is a measure of the value that investors place on a company’s common stock. It is calculated by dividing the current stock price per share by the annual earnings per share. Part II National Beverage’s stock price was $7.74 when the company reported its 2008 EPS of $0.49. Part III National Beverage Corporation’s P/E ratio is The P/E ratio tells us that investors are willing to pay 15.8 times the current year’s earnings for a share of National Beverage Corporation’s common stock. $ 7.74 $ 0.49 P/E = = 11-42

Comparison of EPS, ROE, and P/E Ratios
On your screen, you see a comparison of EPS, ROE, and P/E ratio for National Beverage Corporation and Pepsico. Pepsico’s higher ROE arises because it has successfully used a strategy called financial leverage. Rather than rely on equity financing to expand its business, Pepsico relied on debt financing. Pepsico was able to generate more profit from using these borrowed funds than it incurred for interest on the debt. As a result, Pepsico generated a superior return on equity for stockholders. 11-43

Owners’ Equity for Other Forms of Business
Supplement 11A Owners’ Equity for Other Forms of Business Supplement 11A: Owners’ Equity for Other Forms of Business.

Owner’s Equity for a Sole Proprietorship
Only two owner’s equity accounts. A capital account to record the owner’s investments and the periodic income or loss. A withdrawal account to record the owner’s withdrawals of assets. A sole proprietorship has only two owner’s equity accounts. A capital account to record the owner’s investments and the period income or loss. A withdrawal account to record the owner’s withdrawals of assets. The withdrawal account is closed to the capital account at the end of each period. No separate retained earnings account. Closed to the capital account at the end of each period. 11-45

Accounting for Owner’s Equity for a Sole Proprietorship
To record a $150,000 investment by H. Simpson, the owner. Part I H. Simpson invests $150,000 into his business. The investment is recorded by debiting cash and crediting Capital for $150,000. Part II H. Simpson withdraws $1,000 per month from his business. The monthly withdrawal is recorded by debiting drawings and crediting cash for $1,000 each month. To record H. Simpson’s $1,000 monthly withdrawal. 11-46

Accounting for Owner’s Equity for a Sole Proprietorship
To close revenue and expense accounts to capital. Part I All revenue and expense accounts are closed to H. Simpson’s capital at the end of the accounting period. Part II H. Simpson’s Drawings account is closed to his capital account at the end of the period by debiting capital and crediting drawings. To close the $1,000 monthly drawings to capital. 11-47

Accounting for Partnership Equity
Accounting for assets, liabilities, revenues and expenses follows the same accounting principles as any other form of business. Accounting for partners’ equity follows the same pattern as for a sole proprietorship. When a partnership is formed each partner may contribute both assets and liabilities to the partnership. Contributed assets increase partner’s capital and liabilities decrease partner’s capital. Assets are normally recorded at fair market value and liabilities are recorded at the amount payable. Each partner may be entitled to withdraw cash or other assets from the partnership. A withdrawal reduces the partner’s capital account. Separate capital and drawings accounts are maintained for each partner. 11-48

To record investments by partners Able and Baker who will divide net income as follows: Able, 60 percent and Baker 40 percent. Part I Able and Baker form a partnership by investing $60,000 and $40,000 respectively. They will divide profits in the ratio of their initial investments. The investments are recorded by debiting cash for $100,000 and crediting Able’s capital account for $60,000 and crediting Baker’s capital account for $40,000. Part II Able and Baker withdraw $1,000 and $650, respectively, each month. The monthly withdrawals are recorded by debiting Able’s drawings account for $1,000, debiting Baker’s drawings account for $650, and crediting cash for $1,650 each month. To record the partners’ monthly withdrawal. 11-49

To close revenue and expense accounts to partners’ capital. Part I All revenue and expense accounts are closed to the partners’ capital accounts in the agreed upon ratio at the end of the accounting period. Able’s capital account is credited for 60 percent of the $30,000 partnership profit, and Baker’s capital account is credited for 40 percent of the $30,000 partnership profit. Part II The partners’ drawing accounts are closed to their capital accounts at the end of the period by debiting capital and crediting drawings. To close the monthly drawings to partners’ capital. 11-50

Limited Liability Partnership (LLP) Limited Liability Company (LLC)
Other Business Forms Limited Liability Partnership (LLP) Protects innocent partners from malpractice or negligence claims. Most states hold all partners personally liable for partnership debts. Limited Liability Company (LLC) Owners have same limited liability feature as owners of a corporation. A limited liability corporation typically has a limited life. Partners may form a limited liability partnership, or LLP. An LLP protects innocent partners from malpractice or negligence claims brought against an offending partner. In most states individual partners are personally liable for the debts of the partnership. Partners may wish to consider forming a limited liability company, or LLC. In an LLC, individual owners have limited liability, but the corporation typically has a limited life defined in the agreement. 11-51

Chapter 11 Solved Exercises
M11-4, M11-8, E11-3, E11-6, E11-8, E11-11, E11-20 Chapter 11 Solved Exercises: M11-4, M11-8, E11-3, E11-6, E11-8, E11-11, E11-20

M11-4 Analyzing and Recording the Issuance of Common Stock
To expand operations, Aragon Consulting issued 100,000 shares of previously unissued common stock with a par value of $1. The price for the stock was $75 per share. Analyze the accounting equation effects and record the journal entry for the stock issuance. Analyze 1 Part I M11-4 Analyzing and Recording the Issuance of Common Stock To expand operations, Aragon Consulting issued 100,000 shares of previously unissued common stock with a par value of $1. The price for the stock was $75 per share. Analyze the accounting equation effects and record the journal entry for the stock issuance. Part II The asset account, Cash, will be increased by $7,500,000. The Stockholders’ Equity account Common Stock will be increased by $100,000 and the Stockholders’ Equity account Additional Paid-in Capital will be increased by $7,400,000. Part III We debit the asset account Cash for $7,500,000, we credit the Stockholders’ Equity accounts Common Stock for $100,000 and Additional Paid-in Capital for $7,400,000. Record 2 11-53

M11-4 Analyzing and Recording the Issuance of Common Stock
Would your answer be different if the par value were $2 per share? If, so, analyze the accounting equation effects and record the journal entry for the stock issuance with a par value of $2. The effects on total assets and total stockholders’ equity would not differ, but the amounts within the individual stockholders’ equity accounts would differ. Analyze 1 Part I Would your answer be different if the par value were $2 per share? If, so, analyze the accounting equation effects and record the journal entry for the stock issuance with a par value of $2. Part II The effects on total assets and total stockholders’ equity would not differ, but the amounts within the individual stockholders’ equity accounts would differ. The asset account, Cash, will be increased by $7,500,000. The Stockholders’ Equity account Common Stock will be increased by $200,000 and the Stockholders’ Equity account Additional Paid-in Capital will be increased by $7,300,000. Part III We debit the asset account Cash for $7,500,000, we credit the Stockholders’ Equity accounts Common Stock for $200,000 and Additional Paid-in Capital for $7,300,000. Record 2 11-54

M11-8 Determining the Amount of a Dividend
Netpass Company has 300,000 shares of common stock authorized, 270,000 shares issued, and 100,000 shares of treasury stock. The company’s board of directors declares a dividend of 50 cents per share of common stock. What is the total amount of the dividend that will be paid? Dividends are paid on shares that are issued and outstanding. Dividends are not paid on treasury stock. Part I M11-8 Determining the Amount of a Dividend Netpass Company has 300,000 shares of common stock authorized, 270,000 shares issued, and 100,000 shares of treasury stock. The company’s board of directors declares a dividend of 50 cents per share of common stock. What is the total amount of the dividend that will be paid? Part II Dividends are paid on shares that are issued and outstanding. Dividends are not paid on treasury stock. Part III There are 170,000 shares outstanding (270,000 issued less 100,000 treasury shares). The total dividend paid is $85,000 (170,000 shares times $0.50 per share). 11-55

E11-3 Preparing the Stockholders’ Equity Section of the Balance Sheet
North Wind Aviation received its charter during January The charter authorized the following capital stock: During 2010, the following transactions occurred in the order given: a. Issued a total of 40,000 shares of the common stock to the company’s founders for $11 per share. b. Issued 5,000 shares of the preferred stock at $18 per share. c. Issued 3,000 shares of the common stock at $14 per share and 1, shares of the preferred stock at $28. d. Net income for the first year was $48,000. Required: Prepare the stockholders’ equity section of the balance sheet at December 31, 2010. E11-3 Preparing the Stockholders’ Equity Section of the Balance Sheet North Wind Aviation received its charter during January The charter authorized the following capital stock: Preferred Stock, 8 percent, par $10, 20,000 shares and Common Stock, par $7, authorized 50,000 shares. During 2010, the following transactions occurred in the order given: a. Issued a total of 40,000 shares of the common stock to the company’s founders for $11 per share. b. Issued 5,000 shares of the preferred stock at $18 per share. c. Issued 3,000 shares of the common stock at $14 per share and 1, shares of the preferred stock at $28. d. Net income for the first year was $48,000. Required: Prepare the stockholders’ equity section of the balance sheet at December 31, 2010. 11-56

40,000 shares × ($11 – $7) + 3,000 shares × ($14 – $7)
E11-3 Preparing the Stockholders’ Equity Section of the Balance Sheet 40,000 shares × ($11 – $7) + 3,000 shares × ($14 – $7) 5,000 shares × ($18 – $10) + 1,000 shares × ($28 – $10) Part I Initially, 5,000 shares of Preferred Stock were issued (b) and then 1,000 were issued later (c). Part II Additional Paid-in Capital for the Preferred equals 5,000 shares × ($18 – $10) + 1,000 shares × ($28 – $10). Part III Initially, 40,000 shares of Common Stock were issued (a) and then 3,000 were issued later (c). Part IV Additional Paid-in Capital for the Common equals 40,000 shares × ($11 – $7) + 3,000 shares × ($14 – $7). Net Income for the year was $48,000, resulting in the ending balance in first year’s Retained Earnings of $48,000. 11-57

E11-6 Recording and Reporting Stockholders’ Equity Transactions
AvA School of Learning obtained a charter at the start of 2010 that authorized 50,000 shares of no-par common stock and 20,000 shares of preferred stock, par value $10. During 2010, the following selected transactions occurred: a. Collected $40 cash per share from four individuals and issued 5, shares of common stock to each. b. Issued 6,000 shares of common stock to an outside investor at $40 cash per share. c. Issued 8,000 shares of preferred stock at $20 cash per share. Required: 1. Give the journal entries indicated for each of these transactions. 2. Prepare the stockholders’ equity section of the balance sheet at December 31, At the end of 2010, the accounts reflected net income of $36,000. No dividends were declared. E11-6 Recording and Reporting Stockholders’ Equity Transactions AvA School of Learning obtained a charter at the start of 2010 that authorized 50,000 shares of no-par common stock and 20,000 shares of preferred stock, par value $10. During 2010, the following selected transactions occurred: a. Collected $40 cash per share from four individuals and issued 5,000 shares of common stock to each. b. Issued 6,000 shares of common stock to an outside investor at $40 cash per share. c. Issued 8,000 shares of preferred stock at $20 cash per share. Required: 1. Give the journal entries indicated for each of these transactions. 2. Prepare the stockholders’ equity section of the balance sheet at December 31, At the end of 2010, the accounts reflected net income of $36,000. No dividends were declared. 11-58

E11-6 Recording and Reporting Stockholders’ Equity Transactions
Required: 1. Give the journal entries indicated for each of these transactions. (a) Collected $40 cash per share from four individuals and issued 5, shares of common stock to each. (b) Issued 6,000 shares of common stock to an outside investor at $ cash per share. Part I Required (1) Give the journal entries indicated for each of these transactions. Part II Collected $40 cash per share from four individuals and issued 5,000 shares of common stock to each. Part III We debit the asset account Cash for $800,000 (5,000 shares ×$40 × 4), we credit Common Stock for $800,000. There is no Additional Paid-in Capital since this is no par stock. Part IV (b) Issued 6,000 shares of common stock to an outside investor at $40 cash per share. Part V We debit the asset account Cash for $240,000 (6,000 shares ×$40), we credit Common Stock for $240,000. There is no Additional Paid-in Capital since this is no par stock. 11-59

(c) Issued 8,000 shares of preferred stock at $20 cash per share.
E11-6 Recording and Reporting Stockholders’ Equity Transactions Required: 1. Give the journal entries indicated for each of these transactions. (c) Issued 8,000 shares of preferred stock at $20 cash per share. Part I (c) Issued 8,000 shares of preferred stock at $20 cash per share. Part II We debit the asset account Cash for $160,000 (8,000 shares ×$20), we credit the Stockholders’ Equity accounts Preferred Stock for $80,000 (8,000 × $10) and Additional Paid-in Capital, Preferred for $80,000 [(8,000 × ($20 – $10)]. 11-60

(20,000 shares × $40) + (6,000 shares × ($40)
E11-6 Recording and Reporting Stockholders’ Equity Transactions Required: 2. Prepare the stockholders’ equity section of the balance sheet at December 31, At the end of 2010, the accounts reflected net income of $36,000. No dividends were declared. (20,000 shares × $40) + (6,000 shares × ($40) 8,000 shares × ($20 – $10) Part I Required (2) Prepare the stockholders’ equity section of the balance sheet at December 31, At the end of 2010, the accounts reflected net income of $36,000. No dividends were declared. Part II 8,000 shares of Preferred Stock were issued (c). Part III Additional Paid-in Capital for the Preferred equals 8,000 shares × ($20 – $10). Part IV Initially, 20,000 shares of no par Common Stock were issued (a) and then 6,000 were issued later (b). The total amount in the common stock account is (20,000 shares × $40) + (6,000 shares × ($40) = $1,040,000. Part V Net Income for the year was $36,000, resulting in the ending balance in first year’s Retained Earnings of $36,000. 11-61

E11-8 Recording Treasury Stock Transactions and Analyzing Their Impact
During 2010, the following selected transactions affecting stockholders’ equity occurred for Corner Corporation: Feb. 1 Purchased 400 shares of the company’s own common stock at $ cash per share. Jul. 15 Issued 100 of the shares purchased on February 1, 2010, for $ cash per share. Sept. 1 Issued 60 more of the shares purchased on February 1, 2010, for $20 cash per share. Required: 1. Show the effects of each transaction on the accounting equation. 2. Give the indicated journal entries for each of the transactions. 3. What impact does the purchase of treasury stock have on dividends paid? 4. What impact does the issuance of treasury stock for an amount higher than the purchase price have on net income? E11-8 Recording Treasury Stock Transactions and Analyzing Their Impact During 2010, the following selected transactions affecting stockholders’ equity occurred for Corner Corporation: Feb. 1 Purchased 400 shares of the company’s own common stock at $22 cash per share. Jul. 15 Issued 100 of the shares purchased on February 1, 2010, for $24 cash per share. Sept. 1 Issued 60 more of the shares purchased on February 1, 2010, for $20 cash per share. Required: 1. Show the effects of each transaction on the accounting equation. 2. Give the indicated journal entries for each of the transactions. 3. What impact does the purchase of treasury stock have on dividends paid? 4. What impact does the issuance of treasury stock for an amount higher than the purchase price have on net income? 11-62

Required: 1. Show the effects of each transaction on the accounting equation. Analyze 1 Part I Required (1) Show the effects of each transaction on the accounting equation. Part II The February 1 purchase of Treasury Stock reduces the asset account Cash by $8,800 (400 shares × $22 = $8,800) and increases the contra equity account Treasury Stock (reduces Stockholders’ Equity) by $8,800. Part III. The July 15 sale of Treasury Stock was above its original cost. The asset account Cash is increased by $2,400 (100 shares × $24 = $2,400). The contra equity account Treasury Stock is decreased (increases Stockholders’ Equity) by $2,200, and the Stockholders’ Equity account Additional Paid-in Capital – Treasury Stock is increased by $200. Part IV The September 1 of Treasury Stock was below its original cost. The asset account Cash is increased by $1,200 (60 shares × $20 = $1,200). The contra equity account Treasury Stock is decreased (increases Stockholders’ Equity) by $1,320 (60 shares × $22), and the Stockholders’ Equity account Additional Paid-in Capital – Treasury Stock is decreased by $120. 11-63

Required: 2. Give the indicated journal entries for each of the transactions. Record Feb. 1 2 Record July 15 2 Part I Required (2) Give the indicated journal entries for each of the transactions. Part II We debit the Treasury Stock for the cost of the purchase (400 shares × $22 = $8,800) and credit Cash for $8,800 Part III These treasury shares were sold above their cost. We debit Cash for the amount of the sale (100 shares × $24 = $2,400), credit Treasury Stock for the cost of repurchased shares (100 shares × $22 = $2,200) and credit Additional Paid-in Capital –Treasury for the difference. Part IV These shares were sold below their cost. We debit Cash for the amount of the sale (60 shares × $20 = $1,200, credit Treasury Stock for the cost of repurchased shares (60 shares × $22 = $1,320) and debit Additional Paid-in Capital –Treasury for the difference. Record Sept. 1 2 11-64

Required: 3. What impact does the purchase of treasury stock have on dividends paid? 4. What impact does the issuance of treasury stock for an amount higher than the purchase price have on net income? Dividends are not paid on treasury stock. Therefore, the total amount of cash dividends paid is reduced when treasury stock is purchased. Part I Required (3) What impact does the purchase of treasury stock have on dividends paid? Part II Dividends are not paid on treasury stock. Therefore, the total amount of cash dividends paid is reduced when treasury stock is purchased. Part III Required (4) What impact does the issuance of treasury stock for an amount higher than the purchase price have on net income? Part IV The sale of treasury stock for more or less than its original purchase price does not have an impact on net income. The transaction affects only balance sheet accounts. The sale of treasury stock for more or less than its original purchase price does not have an impact on net income. The transaction affects only balance sheet accounts. 11-65

E11-11 Recording the Payment of Dividends and Preparing a Statement of Retained Earnings
The 2009 annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $119.9 million in It also declared and paid dividends on common stock in the amount of $2 per share. During 2009, Sneer had 1,000,000,000 shares of common authorized; 387,570,300 shares had been issued; 41,670,300 shares were in treasury stock. The balance in Retained Earnings was $1,554 million on December 31, 2008, and 2009 Net Income was $858 million. Required: 1. Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. 2. Using the information given above, prepare a statement of retained earnings for the year ended December 31, 2009. E11-11 Recording the Payment of Dividends and Preparing a Statement of Retained Earnings The 2009 annual report for Sneer Corporation disclosed that the company declared and paid preferred dividends in the amount of $119.9 million in It also declared and paid dividends on common stock in the amount of $2 per share. During 2009, Sneer had 1,000,000,000 shares of common authorized; 387,570,300 shares had been issued; 41,670,300 shares were in treasury stock. The balance in Retained Earnings was $1,554 million on December 31, 2008, and 2009 Net Income was $858 million. Required: 1. Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. 2. Using the information given above, prepare a statement of retained earnings for the year ended December 31, 2009. 11-66

1. Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. a. Preferred Stock Declaration Part I Required 1a. Prepare journal entries to record the declaration, and payment, of dividends on Preferred Stock. Part II We debit Dividends declared and credit Dividends Payable for $119,900,000. Part III We debit Dividends Payable and credit Cash for $119,900,000. Payment 11-67

1. Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. b. Common Stock Dividends are paid on shares that are issued and outstanding. Dividends are not paid on treasury stock. Part I Required 1b. Prepare journal entries to record the declaration, and payment, of dividends on common stock. First, let’s determine how much in dividends the common stockholders will receive. Part II Dividends are paid on shares that are issued and outstanding. Dividends are not paid on treasury stock. Part III There are 345,900,000 shares outstanding (387,570,300 issued less 41,670,300 treasury shares). The total dividend paid is $691,800,000 (345,900,000 shares times $2.00 per share). 11-68

1. Prepare journal entries to record the declaration, and payment, of dividends on (a) preferred and (b) common stock. b. Common Stock Declaration Part I We debit Dividends Declared and credit Dividends Payable for $691,800,000. Part II We debit Dividends Payable and credit Cash for $691,800,000. Payment 11-69

2. Using the information given above, prepare a statement of retained earnings for the year ended December 31, 2009. Part I Required (2) Prepare a statement of retained earnings for the year ended December 31, 2009. Part II We add Net Income to the beginning balance in Retained Earnings and then subtract dividends declared on Preferred and Common to arrive at the ending balance in Retained Earnings. 11-70

Average Number of Common Shares Outstanding
E11-20 Determining the Effect of a Stock Repurchase on EPS and ROE Swimtech Pools Inc. (SPI) reported the following in its financial statements for the quarter ended March 31, 2010. During the quarter ended March 31, 2010, SPI reported Net Income of $5,000 and declared and paid cash dividends totaling $5,000. Required: 1. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended March 31, 2010. Net Income Average Number of Common Shares Outstanding EPS = Part I E11-20 Determining the Effect of a Stock Repurchase on EPS and ROE Swimtech Pools Inc. (SPI) reported the information as shown in its financial statements for the quarter ended March 31, During the quarter ended March 31, 2010, SPI reported Net Income of $5,000 and declared and paid cash dividends totaling $5,000. Required: Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended March 31, 2010. Part II EPS is calculated by dividing Net Income by the average number of common shares outstanding. Part III EPS for the quarter is $0.10 ($5,000 ÷ 50,000 shares). $5,000 50,000 Shares EPS = = $0.10 per share 11-71

Average Stockholders’ Equity ROE =
E11-20 Determining the Effect of a Stock Repurchase on EPS and ROE Required: 1. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended March 31, 2010. Net Income Average Stockholders’ Equity ROE = Part I ROE is calculated by dividing Net Income by average Stockholders’ Equity. Part II ROE for the quarter is 5 percent ($5,000 ÷ $100,000). $5,000 $100,000 ROE = = percent 11-72

$5,000 40,000 Shares EPS = = $0.125 per share
E11-20 Determining the Effect of a Stock Repurchase on EPS and ROE Required: 2. Assume SPI repurchases 10,000 of its common stock at a price of $ per share on April 1, Also assume that during the quarter ended June 30, 2010, SPI reported Net Income of $5,000, and declared and paid cash dividends totaling $5,000. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended June 30, 2010. Part I Required (2) Assume SPI repurchases 10,000 of its common stock at a price of $2 per share on April 1, Also assume that during the quarter ended June 30, 2010, SPI reported Net Income of $5,000, and declared and paid cash dividends totaling $5,000. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended June 30, (1) Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended March 31, 2010. Part II If 10,000 shares are repurchased on April 1, 2010, only 40,000 shares would be outstanding from April 1 – June 30, EPS for the quarter is $0.125 ($5,000 ÷ 40,000 shares). $5,000 40,000 Shares EPS = = $0.125 per share If 10,000 shares are repurchased on April 1, 2010, only 40,000 shares would be outstanding from April 1 – June 30, 2010. 11-73

E11-20 Determining the Effect of a Stock Repurchase on EPS and ROE
Required: 2. Assume SPI repurchases 10,000 of its common stock at a price of $ per share on April 1, Also assume that during the quarter ended June 30, 2010, SPI reported Net Income of $5,000, and declared and paid cash dividends totaling $5,000. Calculate earnings per share (EPS) and return on equity (ROE) for the quarter ended June 30, 2010. $5,000 $80,000 ROE = = percent The return on equity ratio is calculated by dividing Net Income by average Stockholders’ Equity. 10,000 shares are repurchased for $20,000 on April 1, 2010, resulting in a Stockholders’ Equity balance of $80,000 from April 1 – June 30, ROE for the quarter is 6.25 percent ($5,000 ÷ $80,000). 10,000 shares are repurchased for $20,000 on April 1, 2010, resulting in a Stockholders’ Equity balance of $80,000 from April 1 – June 30, 2010. 11-74

By repurchasing stock, a company can increase both its EPS and ROE.
E11-20 Determining the Effect of a Stock Repurchase on EPS and ROE Swimtech Pools Inc. (SPI) reported the following in its financial statements for the quarter ended March 31, 2010. Required: 3. Based on your calculations in requirements 1 and 2, what can you conclude about the impact of a stock repurchase on EPS and ROE? By repurchasing stock, a company can increase both its EPS and ROE. Part I Required (3) Based on your calculations in requirements 1 and 2, what can you conclude about the impact of a stock repurchase on EPS and ROE? Part II By repurchasing stock, a company can increase both its EPS and ROE. 11-75

End of Chapter 11 End of chapter 11.

Fundamentals of Financial Accounting 3e by Phillips, Libby, and Libby.

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Fundamentals of Financial Accounting 3e by Phillips, Libby, and Libby.

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