Broadening Your Perspective 11-1

The stockholders' equity section of Tootsie Roll Industries' balance sheet is shown in the Consolidated Statement of Financial Position. (Note that Tootsie Roll has two classes of common stock. To answer the following questions, add the two classes of stock together.)

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

Earnings, Comprehensive Earnings and Retained Earnings (in thousands except per share data)For the year ended December 31,201120102009Net product sales

$528,369$517,149$495,592Rental and royalty revenue4,1364,2993,739Total revenue532,505521,448499,331Product cost of goods sold365,225349,334319,775Rental and royalty cost1,0381,088852Total costs366,263350,422320,627Product gross margin163,144167,815175,817Rental and royalty gross margin3,0983,2112,887Total gross margin166,242171,026178,704Selling, marketing and administrative expenses108,276106,316103,755Impairment charges??14,000Earnings from operations57,96664,71060,949Other income (expense), net2,9468,3582,100Earnings before income taxes60,91273,06863,049Provision for income taxes16,97420,0059,892Net earnings$43,938$53,063$53,157Net earnings$43,938$53,063$53,157Other comprehensive earnings (loss)(8,740)1,1832,845Comprehensive earnings$35,198$54,246$56,002Retained earnings at beginning of year.$135,866$147,687$144,949Net earnings43,93853,06353,157Cash dividends(18,360)(18,078)(17,790)Stock dividends(47,175)(46,806)(32,629)Retained earnings at end of year$114,269$135,866$147,687Earnings per share$0.76$0.90$0.89Average Common and Class B Common shares outstanding

57,89258,68559,425(The accompanying notes are an integral part of these statements.)

CONSOLIDATED STATEMENTS OF

Financial Position

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES (in thousands except per share data)AssetsDecember 31,20112010CURRENT ASSETS:Cash and cash equivalents$78,612$115,976Investments10,8957,996Accounts receivable trade, less allowances of $1,731 and $1,53141,89537,394Other receivables3,3919,961Inventories:Finished goods and work-in-process42,67635,416Raw materials and supplies29,08421,236Prepaid expenses5,0706,499Deferred income taxes578689Total current assets212,201235,167PROPERTY, PLANT AND EQUIPMENT, at cost:Land21,93921,696Buildings107,567102,934Machinery and equipment322,993307,178Construction in progress2,5989,243455,097440,974Less?Accumulated depreciation242,935225,482Net property, plant and equipment212,162215,492OTHER ASSETS:Goodwill73,23773,237Trademarks175,024175,024Investments96,16164,461Split dollar officer life insurance74,20974,441Prepaid expenses3,2126,680Equity method investment3,9354,254Deferred income taxes7,7159,203Total other assets433,493407,300Total assets$857,856$857,959Liabilities and Shareholders' EquityDecember 31,20112010CURRENT LIABILITIES:Accounts payable$10,683$9,791Dividends payable4,6034,529Accrued liabilities43,06944,185Total current liabilities58,35558,505NONCURRENT LIABILITES:Deferred income taxes43,52147,865Postretirement health care and life insurance benefits26,10820,689Industrial development bonds7,5007,500Liability for uncertain tax positions8,3459,835Deferred compensation and other liabilities48,09246,157Total noncurrent liabilities133,566132,046SHAREHOLDERS' EQUITY:Common stock, $.69-4/9 par value?120,000 shares authorized?36,479 and 36,057 respectively, issued25,33325,040Class B common stock, $.69-4/9 par value?40,000 shares authorized?21,025 and 20,466 respectively, issued14,60114,212Capital in excess of par value533,677505,495Retained earnings, per accompanying statement114,269135,866Accumulated other comprehensive loss(19,953)(11,213)Treasury stock (at cost)?71 shares and 69 shares, respectively(1,992)(1,992)Total shareholders' equity665,935667,408Total liabilities and shareholders' equity$857,856$857,959

TOOTSIE ROLL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

Cash Flows (in thousands)

For the year ended December 31,201120102009CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings$43,938$53,063$53,157Adjustments to reconcile net earnings to net cash provided by operating activities:Depreciation19,22918,27917,862Impairment charges?

?

14,000Impairment of equity method investment

?

?

4,400Loss from equity method investment

194342233Amortization of marketable security premiums

1,267522320Changes in operating assets and liabilities:

Accounts receivable

(5,448)717(5,899)Other receivables

3,963(2,373)(2,088)Inventories

(15,631)(1,447)455Prepaid expenses and other assets

5,1064,9365,203Accounts payable and accrued liabilities

842,180(2,755)Income taxes payable and deferred

(5,772)2,322(12,543)Postretirement health care and life insurance benefits

2,0221,4291,384Deferred compensation and other liabilities

2,1462,5252,960Others

(708)310305Net cash provided by operating activities50,39082,80576,994CASH FLOWS FROM INVESTING ACTIVITIES:Capital expenditures

(16,351)(12,813)(20,831)Net purchase of trading securities

(3,234)(2,902)(1,713)Purchase of available for sale securities

(39,252)(9,301)(11,331)Sale and maturity of available for sale securities

7,6808,20817,511Net cash used in investing activities

(51,157)(16,808)(16,364)CASH FLOWS FROM FINANCING ACTIVITIES:Shares repurchased and retired

(18,190)(22,881)(20,723)Dividends paid in cash

(18,407)(18,130)(17,825)Net cash used in financing activities

(36,597)(41,011)(38,548)Increase (decrease) in cash and cash equivalents(37,364)24,98622,082Cash and cash equivalents at beginning of year115,97690,99068,908Cash and cash equivalents at end of year$78,612$115,976$90,990Supplemental cash flow informationIncome taxes paid

$16,906$20,586$22,364Interest paid

$38$49$182Stock dividend issued

$47,053$46,683$32,538(The accompanying notes are an integral part of these statements.)

Answer the following questions.

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What is the par or stated value per share of Tootsie Roll's common stock? (Round answer to 4 decimal places, e.g. 1.2531.)

Par or stated value per share$

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What percentage of Tootsie Roll's authorized common stock was issued at December 31, 2011? (Round to 0 decimal places, e.g. 17%)

Percentage of common stock issued

%

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How many shares of common stock were outstanding at December 31, 2010, and at December 31, 2011? (Enter the answers in thousands.)

20112010Number of shares outstanding

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Calculate the payout ratio, earnings per share, and return on common stockholders' equity for 2011. (Round earnings per share to 2 decimal places, e.g. 15.12 and all other answers to 1 decimal places, e.g. 12.5%.)

Payout ratio

%Earnings per share$

Return on common stockholders' equity

%

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Garcia Corporation recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned earlier about corporation accounting. During the first month, he made the following entries for the corporation's capital stock. May 2 Cash 118,300 Capital Stock 118,300 (Issued 8,450 shares of $11 par value common stock at $14 per share) 10 Cash 673,100 Capital Stock 673,100 (Issued 12,700 shares of $18 par value preferred stock at $53 per share) 15 Capital Stock Cash 9,150 9,150 (Purchased 610 shares of common stock for the treasury at $15 per share) On the basis of the explanation for each entry, prepare the entries that should have been made for the capital stock transactions. (Record entries in the order displayed in the problem statement. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Don't show me this message again for the assignment Exercise 11-7 On October 31, the stockholders' equity section of Pele Company's balance sheet consists of common stock $531,000 and retained earnings $430,200. Pele is considering the following two courses of action: (1) Declaring a 7% stock dividend on the 88,500 $6 par value shares outstanding (2) Effecting a 2-for-1 stock split that will reduce par value to $3 per share. The current market price is $17 per share. Prepare a tabular summary of the effects of the alternative actions on the company's stockholders' equity and outstanding shares. Pele Company's Balance Sheet After Stock Before Action Dividend After Stock Split Stockholders' equity $ Paid-in capital $ $ $ $ Retained earnings $ Total stockholders' equity Outstanding shares