1015 Identifying Financial Statement Relations Partial forec

10.15 Identifying Financial Statement Relations. Partial forecasts of finan- cial statements for Watson Corporation appear in Exhibit 10.7 (income statement), Exhibit 10.8 (balance sheet), and Exhibit 10.9 (statement of cash flows). Selected amounts have been omit- ted, as have all totals (indicated by XXXX) REQUIRED Determine the amount of each of the following items. a. Dividends declared and paid during Year 1. b. Depreciation expense for Year 1 assuming that Watson Corporation neither sold nor retired depreciable assets during Year1 c. Inventories at the end of Year 2. d. Interest expense on borrowing during Year 2, with an interest rate of 7%. e. Other current liabilities at the end of Year 2. f. Property, plant, and equipment at the end of Year 3 assuming that Watson Corporation neither sold nor retired depreciable assets during Year 3 g. Retained earnings at the end of Year 3 h. Long-term debt at the end of Year 3 The income tax rate for Year4be copied, scanned, or duplicated, in whole or in part. wcN 02-200-202 Purchases of inventories during Year 4 enga j.

Solution

1. dividend declared in y1 = net inc. of y1 - change in retained earning in y1

chng in retained earning = R.e of y1 - RE of y0

dividend = 1153 - (22043 -21700)
=810

2 depriciation = change in accumulated depreciation (see balancesheet)
= 36112 - 33100
=3012

3. inventory in y2 = invtory at y1 + change in inventory in y2 (see cash flow st)

increase in inventory subtracted in CFS

= 8223 + 1322
=9545

4. other current laib in y2 = OCL in y1 + change in ocl in y2 (see CFS)

=3630 + 436
=4066

5. fixed asset in y3 = F.A IN Y2 + ACQUISITION OF FA IN Y3 (SEE CFS INVESTING ACTIVITY)

= 126467 + 24796
=151263

6.RETAINED EARNING IN Y3 = N.I OF Y3 - DIVIDEND OF Y3 (CFS)

= 4206 - 1016
=3190

7. LONG TERMS DEBT AT Y3 = LTD IN Y2 + CHANGE IN LTD IN Y3
=51549+10107
=61656

8. INC TAX RATE = INC TAX / INC BEFORE TAX
INC BEFORE TAX = NET INCOME + INC TAX

INC BEFORE TAX = 5370 + 2892 = 8262

RATE = 2892/8262
=35%