Question

Problem 3-7 Financial Statements (LO1)

Here are the 2015 and 2016 (incomplete) balance sheets for Newble Oil Corp.

BALANCE SHEET AT END OF YEAR
(Figures in $ millions)
Assets	2015			2016			Liabilities and Shareholders' Equity	2015			2016
Current assets	$	326		$	500		Current liabilities	$	290		$	256
Net fixed assets		1,360			1,500		Long-term debt		910			1,080

a&b. What was owners’ equity at the end of 2015 and 2016? (Enter your answers in millions.)

c. If Newble paid dividends of $180 million in 2016 and made no stock issues, what must have been net income during the year? (Enter your answer in millions.)

d. If Newble purchased $380 million in fixed assets during 2016, what must have been the depreciation charge on the income statement? (Enter your answer in millions.)

e. What was the change in net working capital between 2015 and 2016? (Enter your answer in millions.)

f. If Newble issued $232 million of new long-term debt, how much debt must have been paid off during the year? (Enter your answer in millions.)

Answer 1

Q. a) and b) Solution :- Owners' equity = Current assets + Net fixed assets - Long term debt - Current liabilities. (In short, Owners' equity is the difference between total assets and total liabilities of company)

Year	Owners' equity
2015	$ 486 Millions. (326 million + 1360 million - 910 million - 290 million)
2016	$ 664 Millions. (500 million + 1500 million - 1080 million - 256 million)

Conclusion :- Owners' equity at end of Year 2015 = $ 486 Millions.

Owners' equity at end of Year 2016 = $ 664 Millions.

Q. c). Solution :-

Net income during Year 2016 = Owners' equity at end of Year 2016 + Dividend paid during year 2016 - Owners' equity at beginning of Year 2016 (i.e., Owners' equity at end of Year 2015).

= 664 Million + 180 Million - 486 Million

= $ 358 Million.

Conclusion :- Net income during the year 2016 = $ 358 Million.

Q. d). Solution :- Depreciation expense = Purchase of fixed assets during year 2016 - (Fixed assets balance at the end of Year 2016 - Fixed assets balance at the end of Year 2015).

= 380 Million - (1500 Million - 1360 Million)

= 380 Million - 140 Million

= $ 240 Million.

Conclusion :- Depreciation expense in income statement during Year 2016 = $ 240 Million.