Scribd
Upload
52 views2 pages

Chapter 3 (12e) Financial Statements, Cash Flow, and Taxes: Solutions To End-of-Chapter Problems

This document provides solutions to problems from Chapter 3 of an accounting textbook. Problem 3-1 calculates interest expense given net income, EBIT, and tax rate. Problem 3-2 calculates depreciation and amortization given various income statement items. Problem 3-3 calculates dividends paid given return on equity, return on book value, and net income. The remaining problems provide additional practice calculating and reconciling financial statement items such as cash flows, net income, and changes in stockholders' equity.

Uploaded by

takesomething
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
52 views2 pages

Chapter 3 (12e) Financial Statements, Cash Flow, and Taxes: Solutions To End-of-Chapter Problems

This document provides solutions to problems from Chapter 3 of an accounting textbook. Problem 3-1 calculates interest expense given net income, EBIT, and tax rate. Problem 3-2 calculates depreciation and amortization given various income statement items. Problem 3-3 calculates dividends paid given return on equity, return on book value, and net income. The remaining problems provide additional practice calculating and reconciling financial statement items such as cash flows, net income, and changes in stockholders' equity.

Uploaded by

takesomething
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 2

Chapter 3(12e)

Financial Statements, Cash Flow, and Taxes


Solutions to End-of-Chapter Problems

3-1

NI = $3,000,000; EBIT = $6,000,000; T = 40%; Interest = ?


Need to set up an income statement and work from the bottom up.
EBIT
Interest
EBT
Taxes (40%)
NI

$6,000,000
1,000,000
$5,000,000
2,000,000
$3,000,000

$3,000,000 $3,000,000
=
EBT = (1 T)
0.6

Interest = EBIT EBT = $6,000,000 $5,000,000 = $1,000,000.


3-2

EBITDA = $7,500,000; NI = $1,800,000; Int = $2,000,000; T = 40%; DA = ?


EBITDA
DA
EBIT
Int
EBT
Taxes (40%)
NI

$7,500,000
2,500,000
$5,000,000
2,000,000
$3,000,000
1,200,000
$1,800,000

EBITDA DA = EBIT; DA = EBITDA EBIT


EBIT = EBT + Int = $3,000,000 + $2,000,000
(Given)
$1,800,000 $1,800,000
=
(1 T )
0.6
(Given)

3-3 NI = $50,000,000; R/EY/E = $810,000,000; R/EB/Y = $780,000,000; Dividends = ?


R/EB/Y + NI Div = R/EY/E
$780,000,000 + $50,000,000 Div
= $810,000,000
$830,000,000 Div = $810,000,000
$20,000,000 = Div.
3-5

3-6

Ending R/E
= Beg. R/E + Net income Dividends
$278,900,000 = $212,300,000 + Net income $22,500,000
$278,900,000 = $189,800,000 + Net income
Net income = $89,100,000.
a. From the statement of cash flows the change in cash must equal cash flow from
operating activities plus long-term investing activities plus financing activities. First,
we must identify the change in cash as follows:
Cash at the end of the year
Cash at the beginning of the year
Change in cash

$25,000
55,000
-$30,000

The sum of cash flows generated from operations, investment, and financing must
equal a negative $30,000. Therefore, we can calculate the cash flow from operations
as follows:
CF from operations + CF from investing + CF from financing = in cash
CF from operations $250,000 + $170,000 = -$30,000
CF from operations = $50,000.
b. Since we determined that the firms cash flow from operations totaled $50,000 in
Part a of this problem, we can now calculate the firms net income as follows:
Increase in Increase in
accrued A/R and
liabilitie s
inventory
NI + $10,000 + $25,000 $100,000
NI $65,000
NI

NI + Depreciation +

CF from
= operations
= $50,000
= $50,000
= $115,000.

3-7
a. NWC2007 = Total CA (A/P + Accruals)
= $59,000 ($9,000 + $6,000)
= $44,000.
NWC2008 = $72,125 ($10,800 + $7,600)
= $53,725.
b. FCF = EBIT (1 T) + Deprec. Capital expenditures NWC
= $39,000 (1 0.4) + $5,000 $8,000 $9,725
= $10,675.
Note: To arrive at capital expenditures you add depreciation to the change in net
FA, so
Capital expenditures = $5,000 + $3,000 = $8,000.
c.

Statement of Stockholders Equity, 2008


Common Stock

Retained

Total

Stockholders

Balances, 12/31/07
2008 Net Income
Cash Dividends
Addition (Subtraction)
to retained earnings
11,175
Balances, 12/31/08

Shares

Amount

Earnings

Equity

5,000

$50,000

$20,850
22,350
(11,175)

$70,850

11,175
5,000

$50,000

$32,025

$82,025

You might also like