Income Statements and Balance Sheet Balance Sheet 2012 2013

Income Statements and Balance Sheet Balance Sheet

2012

2013

2014

Cash

$9,000

$7,282

$14,000

Short-term investments

48,600

20,000

71,632

Accounts receivable

351,200

632,160

878,000

Inventories

715,200

1,287,360

1,716,480

Total current assets

$1,124,000

$1,946,802

$2,680,112

Gross fixed assets

491,000

1,202,950

1,220,000

Less: Accumulated depreciation

146,200

263,160

383,160

Net fixed assets

$344,800

$939,790

$836,840

Total assets

$1,468,800

$2,886,592

$3,516,952

Liabilities and Equity

Accounts payable

$145,600

$324,000

$359,800

Notes payable

200,000

720,000

300,000

Accruals

136,000

284,960

380,000

Total current liabilities

$481,600

$1,328,960

$1,039,800

Long-term debt

323,432

1,000,000

500,000

Common stock (100,000 shares)

460,000

460,000

1,680,936

Retained earnings

203,768

97,632

296,216

Total equity

$663,768

$557,632

$1,977,152

Total liabilities and equity

$1,468,800

$2,886,592

$3,516,952

2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?

Income Statements and Balance Sheet Balance Sheet	2012	2013	2014
Cash	$9,000	$7,282	$14,000
Short-term investments	48,600	20,000	71,632
Accounts receivable	351,200	632,160	878,000
Inventories	715,200	1,287,360	1,716,480
Total current assets	$1,124,000	$1,946,802	$2,680,112
Gross fixed assets	491,000	1,202,950	1,220,000
Less: Accumulated depreciation	146,200	263,160	383,160
Net fixed assets	$344,800	$939,790	$836,840
Total assets	$1,468,800	$2,886,592	$3,516,952
Liabilities and Equity
Accounts payable	$145,600	$324,000	$359,800
Notes payable	200,000	720,000	300,000
Accruals	136,000	284,960	380,000
Total current liabilities	$481,600	$1,328,960	$1,039,800
Long-term debt	323,432	1,000,000	500,000
Common stock (100,000 shares)	460,000	460,000	1,680,936
Retained earnings	203,768	97,632	296,216
Total equity	$663,768	$557,632	$1,977,152
Total liabilities and equity	$1,468,800	$2,886,592	$3,516,952

Solution

2. Suppose Congress changed the tax laws so that Berndt’s depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?

Ans: Depreciation and amortization are not cash charges, so neither of them has an effect on a firm’s reported profits.

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