Question

Following is the stockholders’ equity section of the balance sheet for The Procter & Gamble Company along with selected earnings and dividend data. For simplicity, balances for noncontrolling interests have been left out of income and shareholders' equity information.
$ millions except per share amounts 2014 2013
Net earnings attributable to Procter $10,956 $11,797
& Gamble shareholders
Common dividends 5,883 5,534
Preferred dividends 256 233
Basic net earnings per common share $3.82 $4.12
Diluted net earnings per common share $3.66 $3.93
Shareholders' equity:
Convertible class A preferred stock, $1,195 $1,234
stated value $1 per share
Common stock, stated value $1 per share 4,008 4,008
Additional paid-in capital 63,181 62,405
Treasury stock, at cost (shares held: (69,604) (67,278)
2014--1260.8; 2013--1242.6)
Retained earnings 75,349 70,682
Accumulated other comprehensive (9,333) (2,054)
income/(loss)
Other (761) (996)
Shareholders' equity attributable to $64,035 $68,001
Procter & Gamble shareholders
a. Compute the number of common shares outstanding at the end of each fiscal year. Estimate the average number of shares outstanding during 2014. Round to one decimal place.
2014 million
2013 million
2014 Average million
b. Calculate the average cost per share of the shares held as treasury stock at the end of each fiscal year. Round to two decimal places.
2014
2013
c. In 2014, preferred shareholders elected to convert 40 million shares of preferred stock into common stock. Rather than issue new shares, the company granted 40 million shares held in treasury stock to the preferred shareholders. Prepare a journal entry to illustrate how this transaction would have been recorded. (Hint: use the cost per share for 2013 determined in b.) Enter answers in millions. Round to the nearest million.
Description Debit Credit
Preferred stockTreasury stockAdditional paid-in capital
Additional paid-in capital
Preferred stockTreasury stockAdditional paid-in capital
d. Calculate P&G's return on common equity (ROCE) for fiscal 2014. Round to one decimal place.
2014

Answer 1

Answer:

See below

Explanation:

a.

2014 $2,747.2 Million

2013 $2,765.4 Million

2014 Average $2,756.3 Million

Working

2014 4,008.0 - 1,260.8 = $2,747.2

2013 4,008.0 - 1,242.6 = $2,765.4

b.

2014 $54.14

2013 $55.21

c.

Account title

Preferred stock A/c Dr. $40.0

Additional paid in capital A/c Dr. $2,128.4

To Treasury stock A/c Cr. $2,168.4

d.

Net earnings attributable to P and G shareholders

$10,956

Shareholder's equity attributable to P and G shareholders $64,035

ROCE

($10,956 / $64,035) × 100

17.1%