St. Genevieve Petroleum Company is an independent oil producer in Baton Parish, Louisiana. In February, company geologists discovered a pool of oil that tripled the company’s proven reserves. Prior to disclosing the new oil to the public, St. Genevieve quietly bought most of its stock as treasury stock. After the discovery was announced, the company’s stock price increased from $6 to $27.
Required
1. Did St. Genevieve managers behave ethically? Explain your answer.
2. Identify the accounting principle relevant to this situation.
3. Who was helped and who was harmed by management’s action?
(Learning Objective 2, 3, 6: Analyzing common stock, retained earnings, return on equity, and return on assets) YUM! Brands’ financial statements appear in Appendix A at the end of this book.
1. YUM reports common stock in a single total. Why is there no paid in capital in excess of par?
2. YUM’s common stock balance appears to be 0. Does the company really have no common stock outstanding? Explain. (Challenge)
3. Examine YUM’s statement of shareholders’ equity. Explain why YUM’s retained earnings balance decreased during 2006.
4. Compute YUM’s return on equity and return on assets for 2006. Which is larger? Is this a sign of financial strength or weakness? Explain.