Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements:
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Gerrard Construction Co. is an excavation contractor. The following summarized data (in thousands) are taken from the December 31, 2019, financial statements:
| For the Year Ended December 31, 2019: | |||
| Net revenues | $ | 30,200 | |
| Cost of services provided | 11,300 | ||
| 6,000 | |||
| Operating income | $ | 12,900 | |
| Interest expense | 3,200 | ||
| Income tax expense | 3,500 | ||
| Net income | $ | 6,200 | |
| At December 31, 2019: | |||
| Assets | |||
| Cash and short-term investments | $ | 3,200 | |
| Accounts receivable, net | 9,500 | ||
| Property, plant, and equipment, net | 83,400 | ||
| Total assets | $ | 96,100 | |
| Liabilities and |
|||
| Accounts payable | $ | 1,600 | |
| Income taxes payable | 1,700 | ||
| Notes payable (long term) | 49,400 | ||
| Paid-in capital | 14,000 | ||
| 29,400 | |||
| Total liabilities and stockholders' equity | $ | 96,100 | |
At December 31, 2018, total assets were $82,000 and total stockholders' equity was $37,900. There were no changes in notes payable or paid-in capital during 2019.
Required:
- From the above income statement and balance sheet for Gerrard Construction Co. What other financial statements are required?
- Indicate the note disclosures that should be provided by Gerrard Construction Co.
- Assume that the balance of "Accounts Receivable, net" at December 31, 2018, was $8,800. Calculate the following activity measures for Gerrard Construction Co. for the year ended December 31, 2019:
- Accounts receivable turnover.
- Number of days' sales in accounts receivable.
- Calculate the following financial leverage measures for Gerrard Construction Co. at December 31, 2019:
- Debt ratio.
- Debt/equity ratio.
- Gerrard Construction Co. wishes to lease some new earthmoving equipment from Caterpillar on a long-term basis. What impact (increase, decrease, or no effect) would a capital lease of 4.1 million have on the company's debt ratio and debt/equity ratio?
- (1) Calculate the amount of dividends declared and paid during the year ended December 31, 2019.
(2) Review the answer from requirement f1 at this time. Assume that Gerrard Construction Co. had 1,026,000 shares of $1 par value common stock outstanding throughout 2019, and that the market price per share of common stock at December 31, 2019, was $18.78. Calculate the following profitability measures for the year ended December 31, 2019:- Earnings per share of common stock.
- Price/earnings ratio.
- Dividend yield.
- Dividend payout ratio.
Please do F2. The answer to F1 is $700
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