Analyzing and Computing Average Issue Price and Treasury Stock Cost

Following is the stockholders$$ equity section from the Campbell Soup Company balance sheet. Note: Campbell$$s uses shareowners$$ equity in lieu of the more common title of stockholders$$ equity.

Shareowners$$ Equity $($millions$,$ except per share amounts$)$Current Fiscal YearPrior Fiscal YearPreferred stock: authorized $40$ shares; none issued$$-$$$-$Capital stock, $$0\mathrm{.}0375$ par value; authorized $560$ shares; issued $323$ shares$1212$Additional paid$-$in capital$349359$Earnings retained in the business$2,2242,385$Capital stock in treasury, at cost$(1,103)(1,066)$Accumulated other comprehensive loss$(118)(53)$Total Campbell Soup Company shareowners$$ equity$$1,364$$$1,637$Noncontrolling interests$98$Total equity$$1,373$$$1,645$

Campbell Soup Company also reports the following statement of stockholders$$ equity.

Capital StockEarningsAccumulatedIssuedIn TreasuryAdditionalRetained in theOther ComprehensiveNoncontrollingTotal$($millions$,$ except per share amounts$)$SharesAmountSharesAmountPaid$-$in CapitalBusinessIncome $($Loss$)$InterestsEquityBalance at start of current year$323$$$12(22)$$$(1,066)$$$359$$$2,385$$$(53)$$$8$$$1,645$Net earnings$261261$Other comprehensive income $($loss$)(65)1(64)$Dividends $($$$1\mathrm{.}40$ per share$)(422)(422)$Treasury stock purchased$(2)(86)(86)$Treasury stock issued under management incentive and stock option plans$249(10)39$Balance at end of current year$323$$$12(22)$$$(1,103)$$$349$$$2,224$$$(118)$$$9$$$1,373$

a$.$ Show the computation, using par value and share numbers, to arrive at the $$12$ million in the capital $($common$)$ stock account.

Note: Do not round inputs for the calculations.

Par ValueShares $($in millions$)$Capital Common Stock $($$ millions$)$Answer $1$Answer $2$

b$.$ At what average price were the Campbell Soup shares issued?

Note: Round price per share to two digits after the decimal, if applicable.

Average Price per ShareAnswer $3$

c$.$ Reconcile the beginning and ending balances of retained earnings.

$($$ millions$)$Retained earnings, July $30,2017$$$2,385$Accumulated other comprehensive lossAdditional paid$-$in capitalCapital stockCapital stock in treasury, at costDividendsEarnings retained in the businessNet earningsNoncontrolling interestsOther comprehensive income $($loss$)$Preferred stockTreasury stock issued under management incentive and stock option plansTreasury stock purchasedAnswer $4$Accumulated other comprehensive lossAdditional paid$-$in capitalCapital stockCapital stock in treasury, at costDividendsEarnings retained in the businessNet earningsNoncontrolling interestsOther comprehensive income $($loss$)$Preferred stockTreasury stock issued under management incentive and stock option plansTreasury stock purchasedAnswer $5$Retained earnings, July $31,2018$$$2,224$

d$.$ Campbell Soup reports an increase in shareowners$$ equity relating to the exercise of stock options $($titled $$Treasury stock issued under management incentive and stock option plans$).$ This transaction involves the purchase of common stock by employees at a preset price. Describe how this set of transactions affects stockholders$$ equity.

The exercise of employee stock options resulted in the issuance of Answer $6$ million shares of stock for a total of $Answer $7$ million. Because the treasury stock shares were sold, the treasury stock account is reduced by the original purchase cost of the shares $($ $Answer $8$ million$)$ and additional paid$-$in capital is Answer $9$increaseddecreased for the difference.

e$.$ Describe the transaction relating to the $$Treasury stock purchased$$ line in the statement of shareowners$$ equity.

Note: Round per share answer to the nearest dollar, if appropriate.

Campbell Soup repurchased Answer $10$ million shares of common stock for a total of $Answer $11$ million, or at a cost of $Answer $12$ per share. The effect of the repurchase of stock is to Answer $13$increasedecrease cash and shareowners$$ equity, thereby shrinking the company.

f$.$ Campbell Soup$$s stock price was $$32\mathrm{.}99$ at the end of the current fiscal year. Determine the company$$s market capitalization that day.

Note: Round answer to the nearest dollar, if applicable.

Market Capitalization at Year End in $ millionsAnswer $14$

g$.$ Calculate and interpret the company$$s market$-$to$-$book ratio at the end of the current fiscal year.

Note: Round answer to the nearest dollar, if applicable.

NumeratorDenominatorMarket to Book RatioAnswer $15$Answer $16$

The market to book ratio is significantly Answer $17$abovebelow $1.$ This means that the market values the company's net assets at Answer $18$moreless than dollar for dollar.