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Consider the following abbreviated financial statements for Parrothead Enterprises: a. What is owners equity for 2020 and

Question:

Consider the following abbreviated financial statements for Parrothead Enterprises:


a. What is owners’ equity for 2020 and 2021?

b. What is the change in net working capital for 2021?

c. In 2021, Parrothead Enterprises purchased $2,740 in new fixed assets. How much in fixed assets did Parrothead Enterprises sell? What is the cash flow from assets for the year? The tax rate is 21 percent.

d. During 2021, Parrothead Enterprises raised $554 in new long-term debt. How much long-term debt must Parrothead Enterprises have paid off during the year? What is the cash flow to creditors?

Transcribed Image Text:

PARROTHEAD ENTERPRISES PARROTHEAD ENTERPRISES 2020 and 2021 Partial Balance Sheets 2021 Income Statement Assets Liabilities and Owners' Equity Sales $16,831 2020 2021 2020 2021 Costs 7,849 Current assets $1,327 $1,438 Current liabilities $ 530 $ 595 Depreciation 1,499 Interest paid 427 Net fixed assets 5,470 6,587 Long-term debt 2,891 3,075

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20 a using standard equation assets equity Liabilities equity assets liabilities 2020 Equity 1327...View the full answer


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Fundamentals Of Corporate Finance

Fundamentals Of Corporate Finance

ISBN: 9781265553609

13th Edition

Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan

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Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

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