a)
To discuss: Annual report, income statement and balance sheet.
a)
Explanation of Solution
Annual report is nothing but the report issued by company to its shareholders annually. It contains financial statements like balance sheet, income statement, statement of cash flows and statement of
Balance sheet is one of the financial
b)
To discuss: Common stockholders’ equity or net worth and
b)
Explanation of Solution
Common stockholders’ equity or net worth is the capital contains company’s capital stock, retained earnings and capital reserves. Retained earnings signify that the company’s accumulated net income retained by company for a particular point of time. Mostly, retained earnings could be used on firm’s operating assets like as buildings and equipment.
c)
To discuss: Cash flow statement and statement of stockholders’ equity.
c)
Explanation of Solution
Statement of stockholders’ equity shows the amount of earnings retained with the company rather than distributed as dividends. It indicates the final resulting balance of stockholders’ equity account and retained earnings account.
Statement of cash flows contains three activities which will impact cash flows of company over a period of time (one year). The three activities are, operating, investing and financing activities.
d)
To discuss: Amortization,
d)
Explanation of Solution
Depreciation is nothing but the reduction of value of an asset. It is treated as non-cash expenses and charged against tangible assets like buildings, equipment.
Amortization is charged against intangible assets like patents and
e)
To discuss: Operating current assets, operating current liabilities, total net operating capital and net operating working capital.
e)
Explanation of Solution
Operating current assets are the current assets that are used to support the company in its business operations. The assets include inventory, cash and accounts receivables, but it doesn’t include short term investments.
Operating current liabilities are the usual outcome of the firm’s operations. It includes accounts payables and accruals but doesn’t include notes payables and short term debt charges.
Net operating working capital is nothing but the difference between operating current assets minus operating current liabilities.
Total net operating capital is nothing the total addition on total net operating working capital and total operating long-term assets like plant and equipment.
f)
To discuss: Accounting profit, net cash flow,
f)
Explanation of Solution
Accounting profit is nothing but net income reported in firm’s income statement. Net cash flow is opposite to accounting net income, it is nothing but total net income of the firm added some non-cash adjustments.
NOPAT is the net operating profit after taxes produced by company when it has no financial assets and no debt. Free cash flows are actually available for investors to distribute only after the firm has made all of its investments in working capital and fixed assets essentially to maintain on-going operations of the business.
Return on invested capital (ROIC) shows the
g)
To discuss: Market value added and economic value added.
g)
Explanation of Solution
Market value added is nothing but the difference between market value of the firm and to its book value of common equity, preferred stock and debt of the company.
Economic value added is the residual income remained after deducting all costs of capital including cost of equity of the company.
h)
To discuss: Progressive tax, taxable income, average and marginal tax rates.
h)
Explanation of Solution
Progressive tax means the higher one’s earnings, the higher the income the larger percentage of taxes paid.
Taxable income is nothing but the income which is chargeable as per income tax rules after deducting certain exemptions and deductions. Margin tax rate is the tax rate on the ultimate unit of income. Average tax rate is calculated by dividing total taxes paid with total taxable income.
i)
To discuss: Meaning of capital gain or loss and tax loss carry forward.
i)
Explanation of Solution
The concept of capital gain or loss will be comes to picture while selling a capital asset more than of its original purchase price. Ordinary corporate operating losses can be used to set off future taxable income; those losses can be carried backward only for 2 years and forward for indefinite period.
j)
To discuss: Improper accumulation and S corporation.
j)
Explanation of Solution
Improper accumulation is the process of retaining the earnings with company to enable its stockholders to evade from personal income taxes on dividends.
S corporation is the small corporation, based on Internal Revenue code. It is decided to be taxed as a sole proprietorship or a partnership and having a limited liability and other form of benefits as per company form of organization.
Want to see more full solutions like this?
Chapter 2 Solutions
Corporate Finance: A Focused Approach (mindtap Course List)
- On which financial statement would the Dividends account appear? A. Balance Sheet B. Income Statement C. Retained Earnings Statement D. Statement of Cash Flowsarrow_forwardOn which two financial statements would the Retained Earnings account appear? A. Balance Sheet B. Income Statement C. Retained Earnings Statement D. Statement of Cash Flowsarrow_forwardWhich financial statement shows the financial position of the company? A. balance sheet B. statement of owners equity C. statement of cash flows D. income statementarrow_forward
- Which of the following financial statements should be prepared first? A. Balance Sheet B. Income Statement C. Retained Earnings Statement D. Statement of Cash Flowsarrow_forwardOwners equity represents which of the following? A. the amount of funding the company has from issuing bonds B. the sum of the retained earnings and accounts receivable account balances C. the total of retained earnings plus paid-in capital D. the business owners/owners share of the company, also known as net worth or net assetsarrow_forwardWhich statement is most directly affected by a change to net income? A. balance sheet B. income statement C. statement of retained earnings D. statement of cash flowsarrow_forward
- Retained earnings is accurately described by all except which of the following statements? A. Retained earnings is the primary component of a companys earned capital. B. Dividends declared are added to retained earnings. C. Net income is added to retained earnings. D. Net losses are accumulated in the retained earnings account.arrow_forwardThe metrics based on financial numbers produced by the accounting system are ________. A. quantitative factors B. qualitative factors C. stakeholders D. stockholdersarrow_forwardClassification of Financial Statement Items Classify each of the following items according to (1) whether it belongs on the income statement (IS) or balance sheet (BS) and (2) whether it is a revenue (R), expense (E), asset (A), liability (L), or stockholders equity (SE) item.arrow_forward
- Cash dividends declared out of current earnings were distributed to an investor. How will the investors investment account be affected by those dividends under each of the following accounting methods?arrow_forwardFinancial statements Each of the following items is shown in the financial statements of ExxonMobil Corporation. Identify the financial statement (balance sheet or income statement) in which each item would appear. a. Accounts payable b. Cash equivalents c. Crude oil inventory d. Equipment e. Exploration expenses f. Income taxes payable g. Investments h. Long-term debt i. Marketable securities j. Notes and loans payable k. Operating expenses l/ Prepaid taxes m. Retained earnings n Sales o Selling expensesarrow_forwardOn which financial statement would the Supplies account appear? A. Balance Sheet B. Income Statement C. Retained Earnings Statement D. Statement of Cash Flowsarrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage LearningPrinciples of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENTIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning