CHAPTER 2
FINANCIAL STATEMENTS, TAXES AND
CASH FLOW
Solutions to Questions and Problems
NOTE: All end of chapter problems were solved using a spreadsheet. Many problems require multiple
steps. Due to space and readability constraints, when these intermediate steps are included in this
solutions manual, rounding may appear to have occurred. However, the final answer for each problem is
found without rounding during any step in the problem.
Basic
2.
The income statement for the company is:
Income Statement
Sales
$586,000
Costs
247,000
Depreciation
43,000
EBIT
$296,000
Interest
32,000
EBT
$264,000
Taxes(35%)
92,400
Net income
$171,600
3.
One equation for net income is:
Net income = Dividends + Addition to retained earnings
Rearranging, we get:
Addition to retained earnings = Net income – Dividends = $171,600 – 73,000 = $98,600
4.
EPS
= Net income / Shares
= $171,600 / 85,000 = $2.02 per share
DPS = Dividends / Shares
= $73,000 / 85,000
= $0.86 per share
5.
To find the book value of current assets, we use: NWC = CA – CL. Rearranging to solve for
current assets, we get:
CA = NWC + CL = $380,000 + 1,400,000 = $1,480,000
The market value of current assets and fixed assets is given, so:
Book value CA
= $1,480,000 Market value CA
= $1,600,000