1. th 9 ©The McGraw-Hill Companies, Inc. 2000 Foundations of Financial Management E D I T I O N N I N T H Irwin/McGraw-Hill Block Hirt 2 C H A P T E R T W O Review of Accounting Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc. 2000

2. th 9 ©The McGraw-Hill Companies, Inc. 2000 Foundations of Financial Management E D I T I O N N I N T H Irwin/McGraw-Hill Block Hirt KRAMER CORPORATION Income Statement For the Year Ended December 31, 1999 1.Sales.................$2,000,000 2.Cost of goods sold...........1,500,000 3.Gross Profits.........500,000 4.Selling and administrative expense....270,000 5.Depreciation expense..........50,000 6.Operating profit (EBIT)*....180,000 7.Interest expense............20,000 8.Earnings before taxes (EBT)..160,000 9.Taxes.................49,500 10.Earnings after taxes (EAT)...110,500 11.Preferred stock dividends........10,500 12.Earnings available to common stockholders.$ 100,000 13.Shares outstanding...........100,000 14.Earnings per share...........$1.00 *Earnings before interest and taxes. T 2-1 Table 2-1

3. th 9 ©The McGraw-Hill Companies, Inc. 2000 Foundations of Financial Management E D I T I O N N I N T H Irwin/McGraw-Hill Block Hirt KRAMER CORPORATION Comparative Balance Sheets Assets Current assets: Cash.......... $ 30,000$ 40,000 Marketable securities.....10,00010,000 Accounts receivable (net)....170,000200,000 Inventory........160,000180,000 Prepaid expenses.......30,00020,000 Total current assets.....400,000450,000 Investments (long term).....20,00050,000 Plant and equipment...... 1,000,000 1,100,000 Less: Accumulated depreciation..550,000600,000 Net plant and equipment.....450,000500,000 Total assets......... $ 870,000 $ 1,000,000 Year-End Year-End 19981999 T 2-7 Table 2-6a

4. th 9 ©The McGraw-Hill Companies, Inc. 2000 Foundations of Financial Management E D I T I O N N I N T H Irwin/McGraw-Hill Block Hirt KRAMER CORPORATION Comparative Balance Sheets Liabilities and Stockholders’ Equity Current liabilities: Accounts payable........$ 45,000 $ 80,000 Notes payable.........100,000 100,000 Accrued expenses........35,00030,000 Total current liabilities...180,000210,000 Long-term liabilities: Bonds payable, 1998........40,00090,000 Total liabilities..... 220,000300,000 Stockholders’ equity: Preferred stock, $100 par value....50,00050,000 Common stock, $1 par value.....100,000100,000 Captial paid in excess of par..... 250,000250,000 Retained earnings........250,000300,000 Total stockholders’ equity.. 650,000700,000 Total liabilities and stockholders’ equity..$870,000 $ 1,000,000 Year-End Year-End 19981999 T 2-7 Table 2-6b

5. th 9 ©The McGraw-Hill Companies, Inc. 2000 Foundations of Financial Management E D I T I O N N I N T H Irwin/McGraw-Hill Block Hirt KRAMER CORPORATION Statement of Cash Flows For the Year Ending December 31, 1999 Cash flows from operating activities: Net income (earnings after taxes).........$ 110,500 Adjustments to determine cash flow from operating activities: Add back depreciation...........50,000 Increase in accounts receivable....... (30,000) Increase in inventory........... (20,000) Decrease in prepaid expenses.......10,000 Increase in accounts payable........35,000 Decrease in accrued expenses....... (5,000) Total adjustments..........40,000 Net cash flows from operating activities.......$ 150,500 T 2-9 Table 2-10a

6. th 9 ©The McGraw-Hill Companies, Inc. 2000 Foundations of Financial Management E D I T I O N N I N T H Irwin/McGraw-Hill Block Hirt Cash flows from investing activities: Increase in investments (long-term securities)... (30,000) Increase in plant and equipment......... (100,000) Net cash flows from investing activities...... ($130,000) Cash flows from financing activities: Increase in bonds payable...........50,000 Preferred stock dividends paid......... (10,500) Common stock dividends paid......... (50,000) Net cash flows from financing activities... ($10,500) Net increase (decrease) in cash flows........$10,000 T 2-9 Table 2-10b