Financial Analysis and Reporting for a Corporation Chapter 13 Financial Analysis and Reporting for a Corporation

Three Financial statements that corporations prepare Income Statement Statement of stockholders’ Equity Balance Sheet

Adjustments on the corporate worksheet First new adjustment Organizational Costs Organizational Expenses Amortization – to recognize a portion of an expense over a number of years.

Adjustments on the corporate worksheet Second new adjustment Federal Income tax payable Federal Income tax expense

Calculating Federal Income Tax Payable We must first determine Net Income Then using the tax rates we determine what the taxes are for the corporation.

Lets give you an example Lets say that our net income before taxes was $130,000 Here is how the tax rate is broken down. 15% of net income 0 to $50,000 25% of net income $50,000 to $75,000 34% of net income $75,000 to $100,000 39% of net income $100,000 to $335,000 34% of net income over $335,000

So lets figure the taxes Net income before taxes is $130,000 $50,000 x 15% = $7,500 $25,000 x 25% = $6,250 $25,000 x 34%% = $8,500 $30,000 x 39%% = $11,700 $130,000 $33,950 This is the number that we actually owe to the government

We then take a look at what we estimated and pay what is left over. Total Federal Income – Estimated Federal Income Tax already paid. = Accrued Federal Income Tax Expense

Financial Statements and Analysis 13-2 This is the part of the textbook where we start to play with the numbers and get to understand what things mean…..

Share of net income assigned to preferred and common stock We have preferred stock at 8% of par value. We have to determine what the share of net income goes to common and preferred.

Earnings Per Share The amount of net income belonging to a single share of stock. Common Stock Share of Net Income / Shares outstanding = Earnings Per Share $ 83,142.51   31,950 $ 2.60

Equity per Share

More Terms Market Value Price- Earning Ratio The price at which a share of stock may be sold on the stock market Price- Earning Ratio The relationship between the market value per share and the earnings per share.

Price-Earnings Ratio

Calculating A/R Turnover Ratio

Finishing A/R Turnover Ratio

Rate Earned on Average Stockholders Equity

Rate Earned on Average Total Assets

End of Fiscal Period Work Adjusting Entries A little different than in the past Look at page 363 and the worksheet on page 352 Notice the adjusting entry Payroll Tax Expense Closing Entries Nothing really different except: Last two entries Income summary to retained earnings Dividend to retained earnings