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Balance Sheets and Income Statements, Liabilities and Stockholder's Equity

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1. What is the relationship of liabilities and stockholder's equity, and why is it so?

What is the purpose of the income statement and the balance sheet? How are the two related? (these two items count as one question)
2. When you contrast the liability of the balance sheet for a manufacturing firm to that of financial services company, why would you expect to see a significant difference in the liquidity of the liabilities?
3. In analyzing the financial statements of a global organization, contrast the difference between shareholders and creditors in the U.S. and other countries.
4. What is the danger of making direct charges to shareholders' equity without running them through the income statement?
5. How would differences in managing inventories, cash balances, and accounts receivables impact the relationship between current assets and non-current assets (long-lived/investments), and current assets and liabilities? (Consider just-in-time, swept balances, and securitization of accounts receivables.)
6. How is the use of accelerated depreciation related to the timing of profits and tax liabilities?

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Solution Preview

1. Liability and shareholder's equity together constitutes the asset of the balance sheet. Also both liability and the share holder's equity are source of fund in the balance sheet.

The purpose of the income statement is to show the financial position of the company for a specified financial year where balance is used to know the net worth and value of the company.
The current asset and the current liability of the balance sheet are main source and use of fund to generate sales and profit in the income statement. The income left after dividend payment is added back in the reserve and surplus of the balance sheet.

2. Liability portion of the manufacturing firm differs from the liability of financial service firm. The main reason behind this is risk sensitivity of the amount available in the liability portion of the balance sheet. Financial services companies' liquidity in liability portion of the balance is more exposed to risk such as interest rate, exchange rate risk ...

Solution Summary

The relationship between liabilities and stockholder's equity is examined. The purpose of income statements and balance sheets are given.

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Pro forma balance sheet, income statement, and selected ratios

I need assistance formulating pro forma financial documents and calculating NPV IRR and payback periods please provide instruction using Microsoft Excel.

1)Given the information below, utilize the percent of sales method to prepare a pro forma balance sheet, income statement, and selected ratios.

1.Sales will increase by 25% next year.
2.The following balance sheet items will increase in direct relation to sales:
a.Cash
b.Accounts Receivable
c.Inventory
d.Fixed Assets
e.Accounts Payable
3.Management forecasts that Notes payable will need to increase by $1,000,000 to support the increase in sales.
4.Management forecasts that Earnings after Taxes will be $2,750,000 next year.
5.The company intends to pay the same amount of dividends next year.

See attachment

2)Stephen Company currently has two mutually exclusive projects under consideration:
Year Project A Project B
0 -30,000 -60,000
1 10,000 20,000
2 10,000 20,000
3 10,000 20,000
4 10,000 20,000
5 10,000 20,000

1. Calculate the following values for each project using the time value tables: (Assume a 14%
discount rate)
? NPV
? IRR
? Payback period

2. Which project would you choose? Why would you choose it?

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