Question

SHARE HOLERS' EQUITY

Balance, end of fiscal year 2011	1,430
Share issues	822
Repurchase of 24 million shares	(720)
Cash dividend	(180)
Unrealized gain on debt investments	50
Net Income	468
Balance, end of fiscal year 2012	1,870

	2012	2011		2012	2011
operating cash	60	50	accounts payable	1,200	1,040
short term investments(mkt)	550	500	accrued liabilities	390	450
accounts receivable	940	790	long-term debt	1,840	1,970
inventory	910	840	common equity	1,870	1,430
property and plant	2,840	2710
=	5,300	4,890		5,300	4,890

BALANCE SHEET ABOVE

The firm’s income tax rate is 35%. The firm reported $15 million in interest income and $98 million in interest expense for 2012. Sales revenue was $3,726 million. A). Reformulate the balance sheet for 2012 in a way that distinguishes operating and financing activities. Also reformulate the equity statement. B). Prepare a reformulated statement of comprehensive income.

Answer 1

Solution:

a) Reformulating the Balance Sheet for 2012 in a way that distinguishes operating and financing activities. Also reformulating the equity statement:

Reformulated Balance Sheet:

Operating Cash		$60
Accounts Receivable		$940
Inventory		$910
Property and Plant		$2,840
Operating Assets		$4,750
Operating Liabilities:
Accounts Payable	$1,200
Accrued Expenses	$390	$1,590
Net Operating Assets		$3,160
Net Financial Obligations:
Short Terrm Investments	($550)
Long Term Debt	$1,840	$1,290
Common Shareholders Equity		$1,870

Reformulated Equity Statement:

Balance at the End of 2011		$1,430
Net Transactions with Shareholders:
Share Issues	$822
Share Repurchases	($720)
Common Dividend	($180)	($78)
Comprehensive Income:
Net Income	$468
Unrealized Gain on Debt investments	$50	$518
Balance at the End of 2012		$1,870

b) Preparing a Reformulated Statement of Comprehensive Income:

Revenue	$3,726
Operating Expenses, Including Taxes	$3,204
Operating Income After Tax		$522
Net Financing Expense:
Interest Expense	$98
Interest Income	$15
Net Interest	$83
Tax at 35%	$29
Net Interest After Tax	$54
Unrealized gain on debt investments	$50	$4
Comprehensive Income		$518