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    Chapter 2 Discussion Questions Rev 0

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    Hayley S
    The document contains financial statements for Rachel Corporation for 2015 and 2016, including balance sheets, income statements, and discussions of dividends and cash flows. The balance sheet showed assets of $200k and $350k and liabilities of $50k and $150k in 2015 and 2016. The income statement showed net income increasing from $95k to $100k from 2015 to 2016. The document also discussed errors in the initial 2015 balance sheet and the calculation of a $50k dividend payment in 2016.

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    Chapter 2 Discussion Questions Rev 0

    Uploaded by

    Hayley S
    33 views6 pages
    The document contains financial statements for Rachel Corporation for 2015 and 2016, including balance sheets, income statements, and discussions of dividends and cash flows. The balance sheet showed assets of $200k and $350k and liabilities of $50k and $150k in 2015 and 2016. The income statement showed net income increasing from $95k to $100k from 2015 to 2016. The document also discussed errors in the initial 2015 balance sheet and the calculation of a $50k dividend payment in 2016.

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    The document contains financial statements for Rachel Corporation for 2015 and 2016, including balance sheets, income statements, and discussions of dividends and cash flows. The balance sheet showed assets of $200k and $350k and liabilities of $50k and $150k in 2015 and 2016. The income statement showed net income increasing from $95k to $100k from 2015 to 2016. The document also discussed errors in the initial 2015 balance sheet and the calculation of a $50k dividend payment in 2016.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    33 views6 pages

    Chapter 2 Discussion Questions Rev 0

    Uploaded by

    Hayley S
    The document contains financial statements for Rachel Corporation for 2015 and 2016, including balance sheets, income statements, and discussions of dividends and cash flows. The balance sheet showed assets of $200k and $350k and liabilities of $50k and $150k in 2015 and 2016. The income statement showed net income increasing from $95k to $100k from 2015 to 2016. The document also discussed errors in the initial 2015 balance sheet and the calculation of a $50k dividend payment in 2016.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Download as xlsx, pdf, or txt
    of 6

    FINA A718 - Chapter 2 Discussion Questions

    Rachel Corporation Balance Sheet


    2015 2016
    Assets
    Current assets - -
    Cash & Equivalents 5 25
    Accounts receivable 10 7
    Inventory 85 118
    Prepaid expenses 0 0
    Total current assets 100 150
    Long-term assets - -
    Property, Plant & Equipment 100 200
    Less: Accumulated depreciation 0 0 Error 1
    NET Property, Plant & Equipment 100 200
    Intangible Assets and Others 0 0
    Total long-term assets 100 200
    Total assets 200 350

    Liabilities and Stockholders’ Equity


    Liabilities - -
    Current liabilities - -
    Accounts payable 45 67
    Notes payable 0 25
    Income tax payable
    Total current liabilities 45 92
    Long-term liabilities - -
    Mortgage payable/Long-term debt 0 50
    Long-term deferred taxes 5 8
    Total long-term liabilities 5 58
    Total liabilities 50 150
    Stockholders’ equity 20 20 Error 2
    Stock
    Retained earnings 130 180
    Total stockholders’ equity 150 200
    Total liabilities and stockholders’ equity 200 350

    Initially, I had difficulty in getting my balance sheet to balance, due to my confusion regarding terminology. Here's why.
    Error 1: I included the "depreciation expense" as part of the "Less: Accumulated depreciation" of long-term assets.
    Error 2: I forgot to include the initial cash investment of $20K (terminology of "stock" versus stockholder's equity)
    inology. Here's why.
    ng-term assets.
    older's equity)
    FINA A718 - Chapter 2 Discussion Questions

    Rachel Corporation Income Sheet


    2015 2016
    Net Sales (or Net Revenue) 350 400
    Cost of Goods Sold (COGS) 125 140
    Gross Profit 225 260
    Operating Expenses (OPEX)* 35 40
    Depreciation 45 50
    Operating Income 145 170
    Other Income 0 0
    Earning before interest & taxes (EBIT) 145 170
    Interest expense 0 15
    Pretax income (EBT) 145 155
    Total Taxes (Current & deferred) 50 55
    Net Income 95 100

    *Recall from Accounting that:


    COGS are direct labor, direct/raw materials & overhead costs for
    production.
    OPEX are direct costs associated with daily operations/production which
    are not included in COGS (e.g., rent, utilities)

    Selling, General & Administrative (SG&A) expenses are company's


    operating costs that are not included in the direct costs of production
    (OPEX) or cost of goods sold (COGS); SG&A includes all non-production
    costs (e.g.., corporate overhead, legal, marketing)
    FINA A718 - Chapter 2 Discussion Questions

    Rachel Corporation 2016 Dividend Calculation

    Statement of Changes in Stockholder Equity for Year End 2016 ($K)


    Beginning Common Stock (End of 2015) 20 20
    Plus: Common Stock Issued 0 0
    A Ending Common Stock 20 20

    Beginning Retained Earnings (End of 2015) 130 130


    Plus: Net Income 100 100
    Less: Dividends ?? 50
    B Ending Retained Earnings (End of 2016) 180 180

    C Total Stockholders Equity 2016 (A+B=C) 200 200

    Total dividend payment was $50


    FINA A718 - Chapter 2 Discussion Questions

    The cash flow identity states that cash flows from ASSETS should equal cash flows to creditors and equity investors.
    (As I understand it, cash flow identity is not the same as the statement of cash flows.)

    Rachel Corporation Statement of Cash Flows for Year Ending 2016


    Cash Flows from Operating Activities
    Cash Receipts from Revenue
    Cash Payments for Expenses
    Interest Paid to Creditors
    Net Cash Flow from Operating Activities

    Cash Flows from Investing Activities


    Cash Payments to Purchase Land
    Cash from Selling Land
    Cash Payments to Purchase Building/Equip.

    Cash from Selling Building/Equip.


    Net Cash Flow from Investing Activities

    Cash Flows from Financing Activities


    Cash receipts from borrowing funds
    Cash receipts from issuing common stock
    Cash Payments for dividends
    Cash Payments for debt
    Net Cash Flow from Financing Activities

    Net Increase/Decrease in Cash


    Plus: Beginning Cash Balance
    Ending Cash Balance
    creditors and equity investors.

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