Corporations A Contemporary Approach
202
WIDGET, INC.
BALANCE SHEET
(As of December 31)
Assets
Year 2
Year 1
Current Assets
Cash
100,000
275,000
Accounts Receivable
1,380,000
1,145,000
Inventories
1,310,000
1,105,000
Prepaid expenses
40,000
35,000
Total Current Assets
2,830,000
2,560,000
Property, Plant, and Equipment
Land*
775,000
775,000
Buildings**
2,000,000
2,000,000
Machinery**
1,000,000
935,000
Office Equipment**
Total PP&E
Accumulated Depreciation***
Intangible Assets****
225,000
205,000
4,000,000
3,915,000
(1,620,000)
(1,370,000)
50,000
0
Total Long-term Assets
2,430,000
2,545,000
Total Assets
5,260,000
5,105,000
900,000
825,000
0
355,000
Accrued expenses payable
250,000
235,000
Other liabilities
600,000
570,000
Total Current Liabilities
1,750,000
1,985,000
Long-term Notes payable, 12.5% due in
ten years
2,000,000
2,000,000
Total Liabilities
3,750,000
3,985,000
200,000
200,000
Liabilities and Equity
Current Liabilities
Accounts payable
Notes payable, 11% due next July 1
Stockholders’ Equity
Common stock (1,000 shares authorized
and outstanding)
Paid-in capital
1,310,000
920,000
Total Equity
Retained earnings
1,510,000
1,120,000
Total Liabilities and Equity
5,260,000
5,105,000
* The land was purchased 15 years ago for $775,000, the price shown on the balance sheet. A
comparable property nearby recently sold for $975,000.
** The machinery and equipment are in good repair. The fair market value
of the building and equipment are about $200,000 more than historical cost.
*** Depreciation is on a level (straight line) basis over the estimated useful life.
**** Intangible assets include patent acquired for $50,000 during Year 2.
Chapter 9 Numeracy for Corporate Lawyers
STATEMENT OF INCOME
(Year Ended December 31)
Year 2
Net sales
Year 1
203
Year 0
7,500,000
7,000,000
6,800,000
4,980,000
4,650,000
4,607,000
Operating Expenses
Cost of goods sold
Depreciation
Selling and admin expense*
R&D
Operating Income
250,000
240,000
200,000
1,300,000
1,220,000
1,150,000
50,000
125,000
120,000
920,000
765,000
723,000
Interest expense
320,000
375,000
375,000
Income before taxes
600,000
390,000
348,000
Income taxes
210,000
136,000
122,000
390,000
254,000
226,000
Net Income
* Includes $130,000 salaries paid to the owners in Year 2; $100,000 in Year 1; and $100,000 in
Year 0, and bonuses totaling $120,000 in Year 2; $100,000 in Year 1; and $80,000 in Year 0.
Statement of Cash Flows
(Year Ended December 31)
Year 2
Year 1
Year 0
From Operating Activities
Net Income
390,000
254,000
226,000
Decrease (Increase) in accts receivable
(235,000)
(34,000)
(32,000)
Decrease (Increase) in inventories
(205,000)
(28,000)
(33,000)
Decrease (Increase) in prepaid expenses
(5,000)
(3,000)
(3,000)
Increase (Decrease) in accounts payable
75,000
25,000
20,000
Increase (Decrease) in accr exp payable
15,000
7,000
5,000
Depreciation
250,000
240,000
200,000
Total from Operating Activities
285,000
461,000
383,000
From Investing Activities
Sales (Purchases) of machinery
(65,000)
(378,000)
(263,000)
Sales (Purchases) of office equipment
(20,000)
(27,000)
(25,000)
Sales (Purchases) of patents
(50,000)
0
0
(135,000)
(405,000)
(288,000)
Increase (Decrease) in short-term debt
30,000
(40,000)
(35,000)
Increase (Decrease) in long-term debt
(355,000)
0
0
Total from Financing Activities
(325,000)
(40,000)
(35,000)
Increase (Decrease) in Cash Position
(175,000)
16,000
60,000
Total from Investing Activities
From Financing Activities