The Davidson Corporation\'s balance sheet and income statement are provided here

Question

The Davidson Corporation's balance sheet and income statement are provided here.

Davidson Corporation: Balance Sheet as of December 31, 2012 (Millions of Dollars)

Davidson Corporation: Income Statement for Year Ending December 31, 2012 (Millions of Dollars)

Enter your answers for parts b-d in millions. For example, an answer of $25,000,000 should be entered as 25.

Construct the statement of stockholders' equity for December 31, 2012. No common stock was issued during 2012. Write out all your answers completely. For example, 25 million should be entered as 25,000,000. Round your answers to the nearest share or dollar.

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

$    million

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

How much money must be paid to current creditors within the next year? Round your answer to the nearest hundredth of million, if necessary.

$    million

Assets Liabilities and Equity Cash and equivalents $20    Accounts payable $100 Accounts receivable 580    Notes payable 215 Inventories 900    Accruals 210   Total current assets $1,500      Total current liabilities $525 Net plant and equipment 2,305    Long-term bonds 1,500      Total debt $2,025    Common stock (100 million shares) 280    Retained earnings 1,500      Common equity $1,780 Total assets $3,805    Total liabilities and equity $3,805

Explanation / Answer

Part A)

Since, we have not been provided with the details of opening balance, we will have to perform the reverse calculations to arrive at the opening balances of common stock, retained earnings and stockholder's equity. We will use the ending balances and the transactions related to net income and dividends during the year. The statement is as follows:

Important Information:

1) Total Stockholder's Equity (12/31/11) = 1,780,000,000 - 606,177,000 = $1,173,823,000

2) Retained Earnings (12/31/11) = 1,173,823,000 - 280,000,000 = $893,823,000

____________

Part B)

The amount reinvested over the years is represented by the value of retained earnings provided to us in the question. A company may retain a portion of its net income every year to meet its growth and expansion objectives.

Answer for Part B = $1500,000,000 (as provided in the balance sheet)

____________

Part C)

The total value of check that can be written off at this time without it bouncing, would be equal to the value of cash and cash equivalents held the company. This information is again available in the balance sheet on the asset side.

Answer for Part C = $20,000,000 (as provided in the balance sheet)

____________

Part D)

The amount that can be paid to the creditors within one is represented by the value of current liabilities provided to us in balance sheet.

Answer for Part D = $525,000,000 (as provided in the balance sheet)

Common Stock Shares Amount Retained Earnings Total Stockholder's Equity Balances, 12/31/11     280,000,000 893,823,000 1,173,823,000 2012 Net income (given) 772,200,000 Cash dividends (given) 166,023,000 Addition to RE (Net Income - Cash Dividends) 606,177,000 Balances, 12/31/12 (given)     $280,000,000 $1,500,000,000 $1,780,000,000

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