Chapter 2 Solutions
CHAPTER 2
The Financial Statements
BRIEF EXERCISES
BE2–1
2008
2008 2008 Beginning Ending Retained 2008 2008 2008 Retained Earnings + Revenues – Expenses – Dividends = Earnings
$28.2 + $43.3 – $38.2 – X = $30.6
X = $2.7
2008 Dividends as a percentage of 2008 net income:
2008 Dividends = $ 2.7 = 52.9% 2008 Net income ($43.3-$38.2) $ 5.1
BE2–2
1) Current Liabilities financed $32 billion of the assets. Current Liabilities divided by Total assets = $32/$59 = 54.2%
2) Long-term debt financed $18 billion of the assets. Long-term debt divided by total assets = $18/$59 = 30.5%
3) Stockholders’ equity financed $9 billion of the assets. Stockholders’ equity divided by total assets = $9/$59 = 15.3%
BE2–3
a) Working capital = current assets – current liabilities. Boeing’s current assets total $27 billion, less $32 billion of current liabilities, gives the company negative working capital of $5 billion. Another measure of solvency would be the current ratio. The current ratio is current assets divided by current liabilities or $27 billion divided by $32 billion = 0.84. Both measures indicate that Boeing appears to have a solvency problem. Current assets are not sufficient to cover current liabilities. Under existing circumstances the Company will have to look to other sources to pay its current obligations.
b) No, Boeing has $15 billion of liquid current assets (cash, short term investments, and accounts receivable) but it has $32 billion of current liabilities.
c) Boeing would be more solvent if accounts receivable were $9.6 billion and inventory was $5.7 billion. Accounts receivable are closer to cash than inventory. This means that accounts receivable are expected to be converted to cash in a shorter period of time than inventory.
BE2-4
2008 2007 2006
Net cash flow from operating
The Financial Statements
BRIEF EXERCISES
BE2–1
2008
2008 2008 Beginning Ending Retained 2008 2008 2008 Retained Earnings + Revenues – Expenses – Dividends = Earnings
$28.2 + $43.3 – $38.2 – X = $30.6
X = $2.7
2008 Dividends as a percentage of 2008 net income:
2008 Dividends = $ 2.7 = 52.9% 2008 Net income ($43.3-$38.2) $ 5.1
BE2–2
1) Current Liabilities financed $32 billion of the assets. Current Liabilities divided by Total assets = $32/$59 = 54.2%
2) Long-term debt financed $18 billion of the assets. Long-term debt divided by total assets = $18/$59 = 30.5%
3) Stockholders’ equity financed $9 billion of the assets. Stockholders’ equity divided by total assets = $9/$59 = 15.3%
BE2–3
a) Working capital = current assets – current liabilities. Boeing’s current assets total $27 billion, less $32 billion of current liabilities, gives the company negative working capital of $5 billion. Another measure of solvency would be the current ratio. The current ratio is current assets divided by current liabilities or $27 billion divided by $32 billion = 0.84. Both measures indicate that Boeing appears to have a solvency problem. Current assets are not sufficient to cover current liabilities. Under existing circumstances the Company will have to look to other sources to pay its current obligations.
b) No, Boeing has $15 billion of liquid current assets (cash, short term investments, and accounts receivable) but it has $32 billion of current liabilities.
c) Boeing would be more solvent if accounts receivable were $9.6 billion and inventory was $5.7 billion. Accounts receivable are closer to cash than inventory. This means that accounts receivable are expected to be converted to cash in a shorter period of time than inventory.
BE2-4
2008 2007 2006
Net cash flow from operating