Problem #1 GAP

Access the 2018 Annual Report for The GAP online from the company’s website.Review the financial statements and the notes to the financial statements.

• What is The GAPs fiscal year-end (in general, not just for each year).
• List the types of stock The GAP is authorized to issue.
• Briefly describe the different features of each type of stock.
• Prepare the journal entry to record the declaration and payment of cash dividends for fiscal year 2018 (assume declaration and payment occurs simultaneously).
• Compute The Gap’s dividend payout ratio for fiscal year 2018.
• Does The Gap have any potentially dilutive securities outstanding?If so, explain the effect of them on The Gap’s FY2018 EPS.
• The Gap has stock option and stock award plans.How many do they have?
• Are any of The Gap’s potential common shares anti-dilutive? State briefly how you know.
• What is the general vesting period for the company’s stock options?
• How many stock options were exercised during fiscal year 2018?
• Assume that a total of 6,000,000 options were granted at the beginning of fiscal year 2014.Each option granted employees the right to purchase one share of common stock at a price of $25 per share.The options have a 4-year service period.The FV of the options were determined to be $28M.Assume all options exercised during fiscal-year 2018 related to these options, and that they were exercised at year-end, 2018.Prepare the journal entries related to the stock options from 2014 to 2018.(If you do not know how many options were exercised in 2018, assume the amount was 500K for partial credit).

Problem #2 Procter and Gamble

Access the 2017 Annual Report for Procter and Gamble online from the company’s website.Review the financial statements and the notes to the financial statements.

• How many shares of common stock are held in treasury at fiscal year-end 2017?
• From the information provided in the St. of S/E, recreate the journal entry to record the conversion of preferred stock during fiscal year 2017. (not graded)

Problem #3

On January 1, 2018, Belk, Inc. had outstanding 460,000 common shares (par $1) that originally sold for $20 per share, and 4,000 shares of 10% cumulative preferred stock (par $100), convertible into 40,000 common shares.

On October 1, 2018, Belk issued an additional 16,000 shares of common stock at $33.At December 31, 2018, there were common stock options outstanding, issued in 2017, and exercisable for 20,000 shares of common stock at an exercise price of $30.The market price of the common stock at year-end was $48.During the year, the price of the common shares had averaged $40.

Net Income was $650,000.The tax rate for the year was 22%.

Compute basic and diluted EPS for the year ended December 31, 2018.

Problem #4

The shareholders’ equity of Vann Industries includes the data shown below.During 2017, cash dividends of $150M were declared.Dividends were not declared in 2016 or 2015.

Common Stock$200M

Pd-In Capital in excess of par, common$800M

Preferred Stock, 10%$140M

Pd-In Capital in excess of par, preferred$270M

Determine the amount of dividends payable to preferred shareholders and to common shareholders under each of the following two assumptions regarding preferred stock:

• The preferred stock is noncumulative
• The preferred stock is cumulative
• The preferred stock is cumulative and fully participating