Davidson Corporation: Balance Sheet as of December 31, 2015 (Millions of Dollars) Assets Liabilities and Equity Cash and equivalents $ 15 Accounts payable $ 120 Accounts receivable 515 Accruals 280 Inventories Notes payable 880 220 Total current assets $1,410 Total current liabilities $ 620 Net plant and equipment 2,590 Long term bonds 1,520 Total liabilities $2,140 Common stock (100 million shares) 260 Retained earnings 1,600 Common equity $1.860 Total assets $4,000 Total liabilities and equity $4.000 Davidson Corporation: Income Statement for Year Ending December 31, 2015 (Millions of Dollars) Sales $6,250 Operating costs excluding depreciation and amortization 5,230 EBITDA $1,020 Depreciation & amortization 220 EBIT $ 800 Interest 180 EBT $ 620 Taxes (40%) 248 Net income $ 372 Common dividends paid $ 146 Earnings per share $ 3.72
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.
The Davidson Corporation’s
are provided here.
a. Construct the statement of
b. How much money has been reinvested in the firm over the years?
c.At the present time, how large a check could be written without it bouncing?
d. How much money must be paid to current creditors within the next year?
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