Page 2 of 4 3. Below is the balance sheet for Glucose Control Company as of Dec.
ID: 2808838 • Letter: P
Question
Page 2 of 4 3. Below is the balance sheet for Glucose Control Company as of Dec. 31, 2015. The company reported an annual net income of $86,000 for the following year, 2016, but did not change its or tiabilities, unless otherwise noted. assets Liabilities and Equity Cash Marketable securities2,000 Notes payable Accounts receivable6,000Current liabilities Inventory Current assets Machines Real estate Fixed assets Total assets 8,000 Accounts payable 16,000 22,000 45,000 Long-term debt 95,000 117,000 20,000 80,000 Retained earings 38,000 58,000 175,000Total liab. & equity 175,000 61,000 Total liabilities 34,000 Paid-in capital 114,000 Equity a. If the company distributed its entire net income as dividends, what would be the value of total equity on Dec. 31, 2016? b. If the company distributed half of its net income as dividends and used the rest to invest in nevw machines, what would be the value of total equity on Dec. 31, 2016? c. If the company didn't pay any dividends, but used the entire net income to pay back long-term debt, what would be the value of total equity on Dec. 31, 2016? d. If the company distributed half of its net income as dividends, used the rest to invest in new machines and sold all its marketable securities to pay back some long-term debt, what would be the value of total equity on Dec. 31, 2016? 4. Emily Lim owns and runs an ice cream parlor in San Diego l ast vear she had sales f S61000oExplanation / Answer
1 Martin Enterprises Income Statement Sales $4,240,000 Less : Cost of Goods Sold $3,680,000 Gross Profit $560,000 Operating Expenses General and Selling administrative expenses $236,320 Depreciation $159,000 Operating Income $164,680 Less: Miscellaneous non-operating expenses $134,000 Net Income before taxes $30,680 Taxes @ 40% $12,272 Net Income $18,408 2 EBIT $80,000 Less : Taxes @ 35% $28,000 Net Operating Profit after taxes $52,000 Net Operating Working Capital - Current Assets - Current Liabilities Last Year - 36000-22000 14000 This Year - 32400-23600 8800 Capital Expenditure This Year Machines value, Last year $34,000 Less : Depreciation $20,000 $14,000 Machines value, this year $40,800 Capital Expenditure $26,800 Free Cash flow - Net operating profit after taxes + Depreciation $52000+20000 $72,000 4 Operating Income Sales $510,000 Less : Ingredients $51,000 Utilities $25,500 Rent of premises $91,800 Salaries (102000+76500+51000) 229500 Depreciation $15,300 Earnings before interest and Tax $96,900 Less : interest $25,500 Earnings before tax $71,400 Less : tax @ 30% $21,420 Net Income $49,980 3 If entire net income is distributed as dividend, than the value of equity would remain the same that is $58000 If half used to pay dividend and other half is used to purchase machine, than the value of equity would remain the same that is $ 58000 The value of equity would not be impacted if the entire net income is used to pay back long term debt, Value of equity would be $ 58000 In the last part also as entire net income is utilised, this will not impact in the value of equity and it will be shown as $ 58000
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