Question

the financial statements of Procter & Gamble Company for the fiscal year ended June 30, 2015. The goal is to contribute to your financial literacy and enable you to engage in just-in-time learning. Should a situation present itself sometime in the future when you need to acquire additional depth of knowledge, you will have an initial familiarity that will enable you to seek out the additional knowledge you require. These are complex topics; to complicate matters further, the nature of some securities is such that it is hard to make the distinction between what is debt and what is equity. You can access the financial statements for Procter & Gamble Company for the year ended June 30, 2015, in many ways, including by visiting the company website. To access the 10-K, go to the website for the Securities and Exchange Commission (sec.gov). Then select “Filings” and “Company Filings Search.” Enter "Procter & Gamble" in the search box that appears. You will arrive on a page detailing all the filings; type "10-K" in the “Filing Type” box at the top of the page, and the filings will be re-sorted so that the 10-K filings are at the head of the listing.

Equity:

1. Explain why the amount reported for Treasury Stock as of June 30, 2015, is subtracted for stockholders’ equity.
2. The company is authorized to issue 200,000,000 shares of Non-Voting Class B preferred stock. As of June 30, 2015, what is the outstanding amount received from the issuance of the Non-Voting Class B preferred stock?
3. The company has issued Convertible Class A preferred stock. Was any of the Convertible Class A stock converted during the fiscal year ended June 30, 2015? If so, what was it converted into?
4. Explain why the balance in “Common Stock, stated value $1 per share” is so small in relation to the balance in the “Additional paid-in capital” account.
5. What percentage of the company’s total assets was financed through retained earnings as of June 30, 2015?

Answer 1

Explain why the amount reported for Treasury Stock as of June 30, 2015, is subtracted for stockholders’ equity.

Answer -

Treasury Stock -

Treasury Stock means company owned certain amount of shares from the issued shares from open market. They don't cancel it but keep under the custody of company. It means it is still issued but under the name of the company. Hence Company don't reduce its Common Stock because it’s still under issued category and hence for better understanding of investors and other users of financial statement company reduce equity section for those amount labeled as treasury stock

Conclusion -

Hence Company has reported $ (77,226) Million separately as of June 30, 2015.

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The company is authorized to issue 200,000,000 shares of Non-Voting Class B preferred stock. As of June 30, 2015, what is the outstanding amount received from the issuance of the Non-Voting Class B preferred stock?

Answer -

As authorized share capital of the company stated it has right to issue 200,000,000 shares of Non-Voting Class B preferred stock. Authorized share capital is clause in MOA that company has to disclose in the MOA (Memorandum of Association) that these amount of Share Company can issue in the open market.

Conclusion -

Company had 0 amount received from the issuance of the Non-Voting Class B preferred stock.

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The company has issued Convertible Class A preferred stock. Was any of the Convertible Class A stock converted during the fiscal year ended June 30, 2015? If so, what was it converted into?

Answer -

During fiscal year ended June 30, 2015 it has been converted into any stock but they got reduced by means of Treasury Shares and Additional Paid-In Capital.

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Explain why the balance in “Common Stock, stated value $1 per share” is so small in relation to the balance in the “Additional paid-in capital” account.

Answer -

Common stock and additional paid in capital -

Whenever a company issue common stock in the market they issued at premium or at discount depend upon the company’s position in the market. Whenever company issue common stock above its par value the excess money company receives goes in to the account additional paid in capital.

For Example - Company issued 1000 common stock par value $ 1 at $ 10 per share

In this case Company received $ 10 per 1000 shares which doesn't mean company will consider it as common stock. Company in the common stock section of financial statement consider as per par value of common stock i.e. $ 1000 and remaining $ 9 for 1000 shares will be consider as additional paid in capital.

Conclusion -

Due to above Reason Company had issued shares over and above its par value and hence company had kept those excess money received disclosed as additional paid in capital. That is the reason balance in “Common Stock, stated value $1 per share” is so small in relation to the balance in the “Additional paid-in capital” account

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What percentage of the company’s total assets was financed through retained earnings as of June 30, 2015?

Answer -

For calculating percentage of the company’s total assets was financed through retained earnings as of June 30, 2015 we have to used ratio as follows -

= Retained Earnings / Total Assets x 100

= 84,807 / 129,495 x 100

= 65.49%

Conculsion -

From the calculation its oberved that 65% of total assets are financed through earnings as of June 30, 2015.