The following schedule summarizes the components of shareholders’ equity reported in the end of 1997 balance sheets of Bethlehem Steel and Lear Corporation:
|
Bethlehem |
Lear |
|
|
Steel |
Corporation |
|
|
(Dollars in millions) |
||
|
Shareholders’ equity: |
||
|
Paid in capital |
$1,923 |
$ 852 |
|
Retained earnings (deficit) |
(708) |
401 |
|
Other |
— |
(46) |
|
Total shareholders’ equity |
$1,215 |
$1,207 |
Required
a. Which firm has obtained the larger amount of capital through sale of stock to investors?
b. Which firm has obtained the larger amount of capital through reinvestment of earnings?
c. Explain why Bethlehem reports a negative (deficit) balance in retained earnings at the end of 1997.
d. Suppose that Lear earns $150 and pays dividends of $90 during 1998. What would be the firm’s ending balance in retained earnings? (All dollars are in millions.)