Ross5eChap02sm

# Ross5eChap02sm - Chapter 2 Accounting Statements and Cash...

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Chapter 2: Accounting Statements and Cash Flow 2.2 The long–term debt account will increase by \$8 million, the amount of the new long–term debt issue. Since the company sold 10 million new shares of stock with a \$1 par value, the common stoc account will increase by \$10 million. The capital surplus account will increase by \$16 million, the value of the new stock sold above its par value. Since the company had a net income of \$7 million, and paid \$4 million in dividends, the addition to retained earnings was \$3 million, which will increase the accumulated retained earnings account. So, the new long–term debt and stockholders’equity portion of the balance sheet will be: Long–term Debt \$68,000,000 Preferred Stock 18,000,000 Common Stock (\$1 par value) 35,000,000 Retained Earnings \$141,000,000 Capital Surplus 16,000,000 Total Liabilities & Equity \$278,000,000

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Answers to End-of-Chapter Problems B- 7 2.4 a. OCF = EBIT + Depreciation – Taxes OCF = \$47,100 + 7,000 – 12,840 OCF = \$41,260 b. CFC = Interest – Net new LTD CFC = \$15,000 – (–\$6,500) CFC = \$21,500
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