Annual report, income statement and balance sheet .

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 2, Problem 1Q

a)

Summary Introduction

To discuss: Annual report, income statement and balance sheet.

a)

Expert Solution

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 stockholders’ equity.

Balance sheet is one of the financial statements that show firm’s financial position as on a particular date. Income statement represents financial performance of the firm during a particular period of time (usually one year). It reports expenses and revenues over a particular period of time.

b)

Summary Introduction

To discuss: Common stockholders’ equity or net worth and retained earnings.

b)

Expert Solution

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)

Summary Introduction

To discuss: Cash flow statement and statement of stockholders’ equity.

c)

Expert Solution

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)

Summary Introduction

To discuss: Amortization, depreciation and EBITDA.

d)

Expert Solution

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 goodwill. EBITDA is nothing but earnings before interest, taxes, depreciation and amortization.

e)

Summary Introduction

To discuss: Operating current assets, operating current liabilities, total net operating capital and net operating working capital.

e)

Expert Solution

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)

Summary Introduction

To discuss: Accounting profit, net cash flow, free cash flow, NOPAT and return on invested capital.

f)

Expert Solution

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 return generated by company’s assets and it is measured by dividing NOPAT with total operating capital.

g)

Summary Introduction

To discuss: Market value added and economic value added.

g)

Expert Solution

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)

Summary Introduction

To discuss: Progressive tax, taxable income, average and marginal tax rates.

h)

Expert Solution

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)

Summary Introduction

To discuss: Meaning of capital gain or loss and tax loss carry forward.

i)

Expert Solution

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)

Summary Introduction

To discuss: Improper accumulation and S corporation.

j)

Expert Solution

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?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

Define each of the following terms:a. Annual report; balance sheet; income statement; statement of cash flows; statement ofstockholders’ equityb. Stockholders’ equity; retained earnings; working capital; net working capital; net operatingworking capital (NOWC); total debtc. Depreciation; amortization; operating income; EBITDA; free cash flow (FCF)d. Net operating profit after taxes (NOPAT)e. Market value added (MVA); economic value added (EVA)f. Progressive tax; marginal tax rate; average tax rateg. Tax loss carryback; carryforward; alternative minimum tax (AMT)h. Traditional IRAs; Roth IRAsi. Capital gain (loss)j. S corporation

Compute for the following:

Which financial statement conveys a company’s ability to generate profits in the current period? a. Income statement.b. Statement of cash flows.c. Balance sheet.d. Statement of stockholders’ equity.

Answer 2

Question

Chapter 2, Problem 1Q

a)

Summary Introduction

To discuss: Annual report, income statement and balance sheet.

a)

Expert Solution

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 stockholders’ equity.

Balance sheet is one of the financial statements that show firm’s financial position as on a particular date. Income statement represents financial performance of the firm during a particular period of time (usually one year). It reports expenses and revenues over a particular period of time.

b)

Summary Introduction

To discuss: Common stockholders’ equity or net worth and retained earnings.

b)

Expert Solution

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)

Summary Introduction

To discuss: Cash flow statement and statement of stockholders’ equity.

c)

Expert Solution

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)

Summary Introduction

To discuss: Amortization, depreciation and EBITDA.

d)

Expert Solution

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 goodwill. EBITDA is nothing but earnings before interest, taxes, depreciation and amortization.

e)

Summary Introduction

To discuss: Operating current assets, operating current liabilities, total net operating capital and net operating working capital.

e)

Expert Solution

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)

Summary Introduction

To discuss: Accounting profit, net cash flow, free cash flow, NOPAT and return on invested capital.

f)

Expert Solution

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 return generated by company’s assets and it is measured by dividing NOPAT with total operating capital.

g)

Summary Introduction

To discuss: Market value added and economic value added.

g)

Expert Solution

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)

Summary Introduction

To discuss: Progressive tax, taxable income, average and marginal tax rates.

h)

Expert Solution

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)

Summary Introduction

To discuss: Meaning of capital gain or loss and tax loss carry forward.

i)

Expert Solution

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)

Summary Introduction

To discuss: Improper accumulation and S corporation.

j)

Expert Solution

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?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 2, Problem 1Q

a)

Summary Introduction

To discuss: Annual report, income statement and balance sheet.

a)

Expert Solution

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 stockholders’ equity.

Balance sheet is one of the financial statements that show firm’s financial position as on a particular date. Income statement represents financial performance of the firm during a particular period of time (usually one year). It reports expenses and revenues over a particular period of time.

b)

Summary Introduction

To discuss: Common stockholders’ equity or net worth and retained earnings.

b)

Expert Solution

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)

Summary Introduction

To discuss: Cash flow statement and statement of stockholders’ equity.

c)

Expert Solution

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)

Summary Introduction

To discuss: Amortization, depreciation and EBITDA.

d)

Expert Solution

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 goodwill. EBITDA is nothing but earnings before interest, taxes, depreciation and amortization.

e)

Summary Introduction

To discuss: Operating current assets, operating current liabilities, total net operating capital and net operating working capital.

e)

Expert Solution

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)

Summary Introduction

To discuss: Accounting profit, net cash flow, free cash flow, NOPAT and return on invested capital.

f)

Expert Solution

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 return generated by company’s assets and it is measured by dividing NOPAT with total operating capital.

g)

Summary Introduction

To discuss: Market value added and economic value added.

g)

Expert Solution

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)

Summary Introduction

To discuss: Progressive tax, taxable income, average and marginal tax rates.

h)

Expert Solution

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)

Summary Introduction

To discuss: Meaning of capital gain or loss and tax loss carry forward.

i)

Expert Solution

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)

Summary Introduction

To discuss: Improper accumulation and S corporation.

j)

Expert Solution

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?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 2, Problem 1Q

a)

Summary Introduction

To discuss: Annual report, income statement and balance sheet.

a)

Expert Solution

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 stockholders’ equity.

Balance sheet is one of the financial statements that show firm’s financial position as on a particular date. Income statement represents financial performance of the firm during a particular period of time (usually one year). It reports expenses and revenues over a particular period of time.

b)

Summary Introduction

To discuss: Common stockholders’ equity or net worth and retained earnings.

b)

Expert Solution

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)

Summary Introduction

To discuss: Cash flow statement and statement of stockholders’ equity.

c)

Expert Solution

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)

Summary Introduction

To discuss: Amortization, depreciation and EBITDA.

d)

Expert Solution

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 goodwill. EBITDA is nothing but earnings before interest, taxes, depreciation and amortization.

e)

Summary Introduction

To discuss: Operating current assets, operating current liabilities, total net operating capital and net operating working capital.

e)

Expert Solution

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)

Summary Introduction

To discuss: Accounting profit, net cash flow, free cash flow, NOPAT and return on invested capital.

f)

Expert Solution

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 return generated by company’s assets and it is measured by dividing NOPAT with total operating capital.

g)

Summary Introduction

To discuss: Market value added and economic value added.

g)

Expert Solution

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)

Summary Introduction

To discuss: Progressive tax, taxable income, average and marginal tax rates.

h)

Expert Solution

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)

Summary Introduction

To discuss: Meaning of capital gain or loss and tax loss carry forward.

i)

Expert Solution

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)

Summary Introduction

To discuss: Improper accumulation and S corporation.

j)

Expert Solution

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?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 2, Problem 1Q

a)

Summary Introduction

To discuss: Annual report, income statement and balance sheet.

a)

Expert Solution

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 stockholders’ equity.

Balance sheet is one of the financial statements that show firm’s financial position as on a particular date. Income statement represents financial performance of the firm during a particular period of time (usually one year). It reports expenses and revenues over a particular period of time.

b)

Summary Introduction

To discuss: Common stockholders’ equity or net worth and retained earnings.

b)

Expert Solution

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)

Summary Introduction

To discuss: Cash flow statement and statement of stockholders’ equity.

c)

Expert Solution

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)

Summary Introduction

To discuss: Amortization, depreciation and EBITDA.

d)

Expert Solution

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 goodwill. EBITDA is nothing but earnings before interest, taxes, depreciation and amortization.

e)

Summary Introduction

To discuss: Operating current assets, operating current liabilities, total net operating capital and net operating working capital.

e)

Expert Solution

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)

Summary Introduction

To discuss: Accounting profit, net cash flow, free cash flow, NOPAT and return on invested capital.

f)

Expert Solution

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 return generated by company’s assets and it is measured by dividing NOPAT with total operating capital.

g)

Summary Introduction

To discuss: Market value added and economic value added.

g)

Expert Solution

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)

Summary Introduction

To discuss: Progressive tax, taxable income, average and marginal tax rates.

h)

Expert Solution

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)

Summary Introduction

To discuss: Meaning of capital gain or loss and tax loss carry forward.

i)

Expert Solution

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)

Summary Introduction

To discuss: Improper accumulation and S corporation.

j)

Expert Solution

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.

Answer 6

Chapter 2, Problem 1Q

a)

Summary Introduction

To discuss: Annual report, income statement and balance sheet.

a)

Expert Solution

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 stockholders’ equity.

Balance sheet is one of the financial statements that show firm’s financial position as on a particular date. Income statement represents financial performance of the firm during a particular period of time (usually one year). It reports expenses and revenues over a particular period of time.

Answer 7

Chapter 2, Problem 1Q

a)

Summary Introduction

To discuss: Annual report, income statement and balance sheet.

Answer 8

a)

Expert Solution

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 stockholders’ equity.

Balance sheet is one of the financial statements that show firm’s financial position as on a particular date. Income statement represents financial performance of the firm during a particular period of time (usually one year). It reports expenses and revenues over a particular period of time.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

Summary Introduction

To discuss: Common stockholders’ equity or net worth and retained earnings.

b)

Expert Solution

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.

Answer 13

b)

Summary Introduction

To discuss: Common stockholders’ equity or net worth and retained earnings.

Answer 14

b)

Expert Solution

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.

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

Summary Introduction

To discuss: Cash flow statement and statement of stockholders’ equity.

c)

Expert Solution

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.

Answer 19

c)

Summary Introduction

To discuss: Cash flow statement and statement of stockholders’ equity.

Answer 20

c)

Expert Solution

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.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

d)

Summary Introduction

To discuss: Amortization, depreciation and EBITDA.

d)

Expert Solution

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 goodwill. EBITDA is nothing but earnings before interest, taxes, depreciation and amortization.

Answer 25

d)

Summary Introduction

To discuss: Amortization, depreciation and EBITDA.

Answer 26

d)

Expert Solution

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 goodwill. EBITDA is nothing but earnings before interest, taxes, depreciation and amortization.

Answer 27

d)

Expert Solution

Answer 28

d)

Expert Solution

Answer 29

Expert Solution

Answer 30

e)

Summary Introduction

To discuss: Operating current assets, operating current liabilities, total net operating capital and net operating working capital.

e)

Expert Solution

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.

Answer 31

e)

Summary Introduction

To discuss: Operating current assets, operating current liabilities, total net operating capital and net operating working capital.

Answer 32

e)

Expert Solution

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.

Answer 33

e)

Expert Solution

Answer 34

e)

Expert Solution

Answer 35

Expert Solution

Answer 36

f)

Summary Introduction

To discuss: Accounting profit, net cash flow, free cash flow, NOPAT and return on invested capital.

f)

Expert Solution

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 return generated by company’s assets and it is measured by dividing NOPAT with total operating capital.

Answer 37

f)

Summary Introduction

To discuss: Accounting profit, net cash flow, free cash flow, NOPAT and return on invested capital.

Answer 38

f)

Expert Solution

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 return generated by company’s assets and it is measured by dividing NOPAT with total operating capital.

Answer 39

f)

Expert Solution

Answer 40

f)

Expert Solution

Answer 41

Expert Solution

Answer 42

g)

Summary Introduction

To discuss: Market value added and economic value added.

g)

Expert Solution

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.

Answer 43

g)

Summary Introduction

To discuss: Market value added and economic value added.

Answer 44

g)

Expert Solution

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.

Answer 45

g)

Expert Solution

Answer 46

g)

Expert Solution

Answer 47

Expert Solution

Answer 48

h)

Summary Introduction

To discuss: Progressive tax, taxable income, average and marginal tax rates.

h)

Expert Solution

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.

Answer 49

h)

Summary Introduction

To discuss: Progressive tax, taxable income, average and marginal tax rates.

Answer 50

h)

Expert Solution

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.

Answer 51

h)

Expert Solution

Answer 52

h)

Expert Solution

Answer 53

Expert Solution

Answer 54

i)

Summary Introduction

To discuss: Meaning of capital gain or loss and tax loss carry forward.

i)

Expert Solution

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.

Answer 55

i)

Summary Introduction

To discuss: Meaning of capital gain or loss and tax loss carry forward.

Answer 56

i)

Expert Solution

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.

Answer 57

i)

Expert Solution

Answer 58

i)

Expert Solution

Answer 59

Expert Solution

Answer 60

j)

Summary Introduction

To discuss: Improper accumulation and S corporation.

j)

Expert Solution

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.

Answer 61

j)

Summary Introduction

To discuss: Improper accumulation and S corporation.

Answer 62

j)

Expert Solution

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.