The Davidson Corporation\'s balance sheet and income statement are given below:

Question

The Davidson Corporation's balance sheet and income statement are given below:

Davidson Corporation: Balance Sheet as of December 31, 2008 (Millions of Dollars)

ASSETS LIABILITIES AND EQUITY
Cash and equivalents $15 Accounts payable $120
Accounts receivable 530 Notes payable 230
Inventories 860 Accruals 300
Total current assets $1,405 Total current liabilities $650
Net plant and equipment 2,365 Long-term bonds 1,480
Total debt $2,130
Common stock (100 million shares) 240
Retained earnings 1,400
Common equity $1,640
Total assets $3,770 Total liabilities and equity $3,770

Davidson Corporation: Income Statement for Year Ending December 31, 2008 (Millions of Dollars)

Sales $7,500
Operating costs excluding depreciation and amortization 5,850
EBITDA $1,650
Depreciation and amortization 525
EBIT $1,125
Less: Interest 213
EBT $912
Taxes (40%) 364.8
Net income $547.2
Common dividends paid $298.224
Earnings per share $5.472

a. Construct the Statement of Retained Earnings for December 31, 2008. Round your answer to two decimal places.


Balance of Retained Earnings, December 31, 2007 million
Add: Net income, 2008 million
Less: Dividends paid to common stockholders million
Balance of Retained Earnings, December 31, 2008 million


b. How much money has been reinvested in the firm over the years? Round your answer to the nearest hundredth of million, if necessary.
million

c. At the present time, how large a check could be written without it bouncing? Round your answer to the nearest hundredth of million, if necessary.
million

d. How much money must be paid to current creditors within the next year?

Explanation / Answer

a. Construct the Statement of Retained Earnings for December 31, 2008. Round your answer to two decimal places. Balance of Retained Earnings, December 31, 2007 = Balance of Retained Earnings, December 31, 2008 + Dividends paid to common stockholders million - Net income, 2008 ie Balance of Retained Earnings, December 31, 2007 = 1400 + 298.224 - 547.20 = 1151.024 Million So Balance of Retained Earnings, December 31, 2007 = 1151.024million Add: Net income, 2008 million = 547.20 Millon Less: Dividends paid to common stockholders million = 298.224 million Balance of Retained Earnings, December 31, 2008 million = 1400 million b. How much money has been reinvested in the firm over the years? Round your answer to the nearest hundredth of million, if necessary. Ans : Retained earnings are earnings of a corporation that are reinvested in the business rather than being distributed to shareholders as dividends.SO In Year 2007, amount reinvested is $1151.024M & in Year 2008, it is $1400M c. At the present time, how large a check could be written without it bouncing? Round your answer to the nearest hundredth of million, if necessary. Ans : It is equal to Cash in Hand ie 15million d. How much money must be paid to current creditors within the next year? Ans: It i Account Payable = $120M

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