Metzger Steel Corporation (MSC) is a small specialty steel manufacturer located in northern Alabama. The Metzger family


Metzger Steel Corporation (MSC) is a small specialty steel manufacturer located in northern Alabama. The Metzger family has owned the company for several generations. Arnold Metzger is a major shareholder in MSC by virtue of his having inherited 200,000 shares of common stock in the company. Metzger has not shown much interest in the business because of his enthusiasm for archaeology, which takes him to far parts of the world. However, when he received the minutes of the last board of directors meeting, he questioned a number of transactions involving stockholders’ equity. He asks you as a person with knowledge of accounting to help him interpret the effect of these transactions on his interest in MSC.

You begin by examining the stockholders’ equity section of MSC’s December 31, 20x7, balance sheet, which appears at the top of the opposite page.

Then you read these relevant parts of the minutes of the board of directors meeting on December 15, 20x8:

Item A The president reported the following transactions involving the company’s stock during the last quarter:

October 15. Sold 500,000 shares of authorized common stock through the investment banking firm of T.R. Kendall at a net price of $50 per share.

November 1. Purchased 100,000 shares for the corporate treasury from Lucy Metzger at a price of $55 per share.

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Item B The board declared a 2-for-1 stock split (accomplished by halving the par value and doubling each stockholder’s shares), followed by a 10 percent stock dividend. The board then declared a cash dividend of $2 per share on the resulting shares. Cash dividends are declared on outstanding shares and shares distributable. All these transactions are applicable to stockholders of record on December 20 and are payable on January 10. The market value of MSC stock on the board meeting date after the stock split was estimated to be $30.
Item C The chief financial officer stated that he expected the company to report net income for the year of $4,000,000.
1. Prepare a stockholders’ equity section of MSC’s balance sheet as of December 31, 20x8 that reflects the above transactions. (Hint: Use T accounts to analyze the transactions. Also use a T account to keep track of the shares of common stock outstanding.)
2. Write a memorandum to Arnold Metzger that shows the book value per share and Metzger’s percentage of ownership at the beginning and end of the year. Explain the difference and state whether Metzger’s position has improved during the year. Tell why or why not and state how Metzger may be able to maintain his percentage of ownership.
Annual Report Case: CVS Corporation Corporate Income Statement and Statement of Stockholders’ Equity

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Financial Accounting

ISBN: 9780547070025

9th Edition

Authors: Jr. Belverd E. Needles, Marian Powers

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