P7.2 Excess Earnings Valuation with an Intangible Asset-Two-Year Investment Life-The One-Shot Tee-Shirt Company: At the end of Year 0, an investor creates a company by investing $1,500 in cash for stock, and the company uses all of the cash to buy t-shirts (inventory). The company also issues $200 of stock to another investor who gave the company a customer list (the name of the vendor). The company records a $200 intangible asset at the end of Year 0 for this transaction. At the end of Year 1, the company sells the t-shirts to a vendor for $2,420 but does not collect the revenue in cash until the end of Year 2. At the end of Chapter 7 | The Excess Earnings Valuation Method Year 2, the company liquidates itself by paying a liquidating dividend. The company has no operating expenses other than those related to the inventory (cost of goods sold) and does not pay income taxes. We show the company's income statement and balance sheet forecasts in Exhibit P7.2. For all parts of this problem, assume a discount rate of 10%. EXHIBIT P7.2 Income Statement and Balance Sheet Forecasts for the One-Shot Tee-Shirt Company with an Intangible Asset ONE-SHOT TEE-SHIRT COMPANY Balance Sheet and Income Statement Income Statement Revenue Amortization of intangible.. Expenses Earnings.. Year 0 Year 1 Year 2 $2,420 $ 0 -100 -100 -1,500 $ 820 $-100 Balance Sheet Cash.. Receivable Inventory (t-shirts). $ 0 $ 0 $ 0 2,420 1,500 0 Intangible asset 200 100 0000 Total assets.. $1,700 $2,520 $ 0 Common stock.. $1,700 Retained earnings $1,700 820 $1,700 -1,700 Total equities $1,700 $2,520 $ 0 275
P7.2 Excess Earnings Valuation with an Intangible Asset-Two-Year Investment Life-The One-Shot Tee-Shirt Company: At the end of Year 0, an investor creates a company by investing $1,500 in cash for stock, and the company uses all of the cash to buy t-shirts (inventory). The company also issues $200 of stock to another investor who gave the company a customer list (the name of the vendor). The company records a $200 intangible asset at the end of Year 0 for this transaction. At the end of Year 1, the company sells the t-shirts to a vendor for $2,420 but does not collect the revenue in cash until the end of Year 2. At the end of Chapter 7 | The Excess Earnings Valuation Method Year 2, the company liquidates itself by paying a liquidating dividend. The company has no operating expenses other than those related to the inventory (cost of goods sold) and does not pay income taxes. We show the company's income statement and balance sheet forecasts in Exhibit P7.2. For all parts of this problem, assume a discount rate of 10%. EXHIBIT P7.2 Income Statement and Balance Sheet Forecasts for the One-Shot Tee-Shirt Company with an Intangible Asset ONE-SHOT TEE-SHIRT COMPANY Balance Sheet and Income Statement Income Statement Revenue Amortization of intangible.. Expenses Earnings.. Year 0 Year 1 Year 2 $2,420 $ 0 -100 -100 -1,500 $ 820 $-100 Balance Sheet Cash.. Receivable Inventory (t-shirts). $ 0 $ 0 $ 0 2,420 1,500 0 Intangible asset 200 100 0000 Total assets.. $1,700 $2,520 $ 0 Common stock.. $1,700 Retained earnings $1,700 820 $1,700 -1,700 Total equities $1,700 $2,520 $ 0 275
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:P7.2
Excess Earnings Valuation with an Intangible Asset-Two-Year Investment Life-The One-Shot
Tee-Shirt Company: At the end of Year 0, an investor creates a company by investing $1,500 in cash for
stock, and the company uses all of the cash to buy t-shirts (inventory). The company also issues $200 of stock
to another investor who gave the company a customer list (the name of the vendor). The company records
a $200 intangible asset at the end of Year 0 for this transaction. At the end of Year 1, the company sells the
t-shirts to a vendor for $2,420 but does not collect the revenue in cash until the end of Year 2. At the end of
Chapter 7 | The Excess Earnings Valuation Method
Year 2, the company liquidates itself by paying a liquidating dividend. The company has no operating expenses
other than those related to the inventory (cost of goods sold) and does not pay income taxes. We show the
company's income statement and balance sheet forecasts in Exhibit P7.2. For all parts of this problem, assume
a discount rate of 10%.
EXHIBIT P7.2 Income Statement and Balance Sheet Forecasts for
the One-Shot Tee-Shirt Company with an Intangible Asset
ONE-SHOT TEE-SHIRT COMPANY
Balance Sheet and Income Statement
Income Statement
Revenue
Amortization of intangible..
Expenses
Earnings..
Year 0
Year 1
Year 2
$2,420 $ 0
-100
-100
-1,500
$ 820
$-100
Balance Sheet
Cash..
Receivable
Inventory (t-shirts).
$
0
$ 0
$
0
2,420
1,500
0
Intangible asset
200
100
0000
Total assets..
$1,700
$2,520
$ 0
Common stock..
$1,700
Retained earnings
$1,700
820
$1,700
-1,700
Total equities
$1,700 $2,520
$ 0
275
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