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Note that all dollar amounts in the statements and problems are in millions of dollars ($000,000). Treat each question independently and watch the dates in the questions and on the statements. Fiscal year 2019 means the year ended December 31, 2019. Transaction Analysis On January 1, 2016, Dow issued (sold) fifteen-year bonds with a face value of $3,000. These bonds have a coupon rate of 4% and pay interest semi-annually (i.e., on June 30 and December 31). The bond issuance and all other necessary entries during fiscal years 2016- 2018 were correctly made. However, no entries were made regarding this bond during fiscal year 2019. For this problem, please carry out all calculations and give your solution to two decimal places (i.e., 123.45 rather than 123). The market yield for these bonds at different points in time was: January 1, 2016 - December 31, 2016 6% per year(*) January 1, 2017 - December 31, 2018 8% per year (*) January 1, 2019 - December 31, 2019 2% per year (*) (*) compounded semi-annually If the appropriate entries had been made for the year, what would be the reported amounts (not just the effect) for: a) Total Liabilities as of December 31, 2019? b) Net income (loss) available for Dow common stockholders for the year ended December 31, 2019? Inferences 1. During the year ended December 31, 2019 Dow correctly made adjustments to Retained Earnings which reduced it by $14,971. What were dividends declared for the year ended December 31, 2019? Dow Inc. and Subsidiaries Consolidated Statements of Income 2018 $ $ (In millions, except per share amounts) For the years ended Dec 31, Net sales Cost of sales Research and development expenses Selling, general and administrative expenses Amortization of intangibles Restructuring, goodwill impairment and asset related charges - net Integration and separation costs Equity in earnings (losses) of nonconsolidated affiliates Sundry income (expense) - net Interest income Interest expense and amortization of debt discount Income (loss) from continuing operations before income taxes Provision for income taxes on continuing operations Income (loss) from continuing operations, net of tax Income from discontinued operations, net of tax Net income (loss) Net income attributable to noncontrolling interests Net income (loss) available for Dow Inc. common stockholders 2019 42.951 36,657 765 1,590 419 3,219 1,063 (94) 461 81 933 (1,247) 470 (1,717) 445 49,604 $ 41,074 800 1,782 469 221 1,179 555 96 82 1,063 3,749 809 2,940 1,835 4,775 134 4,641 $ 2017 43,730 36,350 803 1,795 400 2,739 798 394 (154) 66 914 237 1,524 (1,287) 1,882 595 130 (1,272) 87 (1,359) $ 465 See Notes to the Consolidated Financial Statements Dow Inc. and Subsidiaries Consolidated Statements of Cash Flows (partial) 2019 2018 2017 (In millions) For the years ended Dec 31, Operating Activities Net income (loss) $ (1,272) $ 4,775 $ 595 445 1,835 1,882 (1,287) (1,717) 2,940 2,938 2.909 2,546 1.413 (228) (429) 1,114 108 253 Less: Income from discontinued operations, net of tax Income (loss) from continuing operations, net of tax Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization Provision (credit) for deferred income tax Earnings of nonconsolidated affiliates less than dividends received Net periodic pension benefit cost Pension contributions Net gain on sales of assets, businesses and investments Restructuring, goodwill impairment and asset related charges - net Other net loss Changes in assets and liabilities, net of effects of acquired and divested companies: Accounts and notes receivable 279 144 (261) (81) 3,219 (1,651) (38) 221 1,032 (1,672) (419) 2,739 198 415 451 1.253 (855) (11,431) Inventories 668 (859) (891) (948) (586) 5,713 787 (731) Accounts payable Other assets and liabilities, net Cash provided by used for) operating activities - continuing operations Cash provided by operating activities - discontinued operations Cash provided by (used for) operating activities 1,081 (258) 3,096 1,158 217 (6,443) 1,514 (4,929) 5,930 4.254 Dow Inc. and Subsidiaries Consolidated Balance Sheets (modified) 2019 2018 $ $ 2,367 21 7,555 6.214 658 2,724 100 9,035 6,899 712 19,900 39,370 16,815 1,404 2,588 1,063 5,055 3,320 2,646 360 6.326 54,910 33,914 20,996 53,984 32,566 21,418 9,846 4,225 8,796 3,759 2,072 2,213 818 17,658 60,524 1,779 735 16,585 83,699 $ $ (In millions, except share amounts) At Dec 31, Assets Current Assets Cash and cash equivalents Marketable securities Accounts Receivables (net of allowance for doubtful receivables - 2019: $45; 2018: $42) Inventories Other current assets Assets of discontinued operations - current Total current assets Investments Investment in nonconsolidated affiliates Other investments Noncurrent receivables Total investments Property Property Less accumulated depreciation Net property Other Assets Goodwill Other intangible assets (net of accumulated amortization - 2019: $3,886; 2018: $3,379) Operating lease right-of-use assets Deferred income tax assets Deferred charges and other assets Total other assets Total Assets Liabilities and Equity Current Liabilities Notes payable Long-term debt due within one year Accounts payable: Trade Other Operating lease liabilities - current Income taxes payable Accrued and other current liabilities Liabilities of discontinued operations - current Total current liabilities Long-Term Debt Pension and other postretirement benefits Asbestos-related liabilities Operating lease liabilities - noncurrent Other noncurrent obligations Stockholders' Equity Common stock (2019: authorized 5,000,000,000 shares and issued 751,228,644 shares of $0.01 par value each: 2018: authorized and issued 100 shares of $0.01 par value each) Additional paid-in capital Retained earnings Accumulated other comprehensive loss Unearned ESOP shares Treasury stock at cost (2019: 9,729,834 shares; 2018: zero shares) Dow Inc.'s stockholders' equity Noncontrolling interests Total equity Total Liabilities and Equity See Notes to the Consolidated Financial Statements. 586 $ 298 338 435 4.456 2,479 3.889 2,064 421 522 2,762 557 10,679 16,322 10,083 1,060 1,739 6,547 2,931 4,488 15,547 19,754 8.926 1,142 4.709 7,042 35,460 9,885) (134) 8 7,325 17,045 (10,246) (91) (500) 13,541 553 14,094 60,524 32,483 1,138 33,621 83,699 $ S Notes to the Consolidated Financial Statements NOTE 11 - INVENTORIES The following table provides a breakdown of inventories: $ Inventories at Dec 31 In millions Finished goods Work in process Raw materials Supplies Total Adjustment of inventories to a LIFO basis Total inventories 2019 3,505 $ 1,122 628 2018 4,313 1,335 674 826 7,148 (249) 6,899 845 $ 6,100 $ 114 6,214 $ $ Inventories valued on a LIFO basis represented 32 percent of the total inventories at December 31, 2019 and 34 percent the total inventories at December 31, 2018 NOTE 18 - LEASES Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non- cancelable terms in excess of one year at December 31, 2018 were as follows: $ Minimum Lease Commitments at Dec 31, 2018 In millions 2019 2020 2021 2022 2023 2024 and thereafter Total 366 329 296 269 227 855 2,342 $ Note that all dollar amounts in the statements and problems are in millions of dollars ($000,000). Treat each question independently and watch the dates in the questions and on the statements. Fiscal year 2019 means the year ended December 31, 2019. Transaction Analysis On January 1, 2016, Dow issued (sold) fifteen-year bonds with a face value of $3,000. These bonds have a coupon rate of 4% and pay interest semi-annually (i.e., on June 30 and December 31). The bond issuance and all other necessary entries during fiscal years 2016- 2018 were correctly made. However, no entries were made regarding this bond during fiscal year 2019. For this problem, please carry out all calculations and give your solution to two decimal places (i.e., 123.45 rather than 123). The market yield for these bonds at different points in time was: January 1, 2016 - December 31, 2016 6% per year(*) January 1, 2017 - December 31, 2018 8% per year (*) January 1, 2019 - December 31, 2019 2% per year (*) (*) compounded semi-annually If the appropriate entries had been made for the year, what would be the reported amounts (not just the effect) for: a) Total Liabilities as of December 31, 2019? b) Net income (loss) available for Dow common stockholders for the year ended December 31, 2019? Inferences 1. During the year ended December 31, 2019 Dow correctly made adjustments to Retained Earnings which reduced it by $14,971. What were dividends declared for the year ended December 31, 2019? Dow Inc. and Subsidiaries Consolidated Statements of Income 2018 $ $ (In millions, except per share amounts) For the years ended Dec 31, Net sales Cost of sales Research and development expenses Selling, general and administrative expenses Amortization of intangibles Restructuring, goodwill impairment and asset related charges - net Integration and separation costs Equity in earnings (losses) of nonconsolidated affiliates Sundry income (expense) - net Interest income Interest expense and amortization of debt discount Income (loss) from continuing operations before income taxes Provision for income taxes on continuing operations Income (loss) from continuing operations, net of tax Income from discontinued operations, net of tax Net income (loss) Net income attributable to noncontrolling interests Net income (loss) available for Dow Inc. common stockholders 2019 42.951 36,657 765 1,590 419 3,219 1,063 (94) 461 81 933 (1,247) 470 (1,717) 445 49,604 $ 41,074 800 1,782 469 221 1,179 555 96 82 1,063 3,749 809 2,940 1,835 4,775 134 4,641 $ 2017 43,730 36,350 803 1,795 400 2,739 798 394 (154) 66 914 237 1,524 (1,287) 1,882 595 130 (1,272) 87 (1,359) $ 465 See Notes to the Consolidated Financial Statements Dow Inc. and Subsidiaries Consolidated Statements of Cash Flows (partial) 2019 2018 2017 (In millions) For the years ended Dec 31, Operating Activities Net income (loss) $ (1,272) $ 4,775 $ 595 445 1,835 1,882 (1,287) (1,717) 2,940 2,938 2.909 2,546 1.413 (228) (429) 1,114 108 253 Less: Income from discontinued operations, net of tax Income (loss) from continuing operations, net of tax Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities: Depreciation and amortization Provision (credit) for deferred income tax Earnings of nonconsolidated affiliates less than dividends received Net periodic pension benefit cost Pension contributions Net gain on sales of assets, businesses and investments Restructuring, goodwill impairment and asset related charges - net Other net loss Changes in assets and liabilities, net of effects of acquired and divested companies: Accounts and notes receivable 279 144 (261) (81) 3,219 (1,651) (38) 221 1,032 (1,672) (419) 2,739 198 415 451 1.253 (855) (11,431) Inventories 668 (859) (891) (948) (586) 5,713 787 (731) Accounts payable Other assets and liabilities, net Cash provided by used for) operating activities - continuing operations Cash provided by operating activities - discontinued operations Cash provided by (used for) operating activities 1,081 (258) 3,096 1,158 217 (6,443) 1,514 (4,929) 5,930 4.254 Dow Inc. and Subsidiaries Consolidated Balance Sheets (modified) 2019 2018 $ $ 2,367 21 7,555 6.214 658 2,724 100 9,035 6,899 712 19,900 39,370 16,815 1,404 2,588 1,063 5,055 3,320 2,646 360 6.326 54,910 33,914 20,996 53,984 32,566 21,418 9,846 4,225 8,796 3,759 2,072 2,213 818 17,658 60,524 1,779 735 16,585 83,699 $ $ (In millions, except share amounts) At Dec 31, Assets Current Assets Cash and cash equivalents Marketable securities Accounts Receivables (net of allowance for doubtful receivables - 2019: $45; 2018: $42) Inventories Other current assets Assets of discontinued operations - current Total current assets Investments Investment in nonconsolidated affiliates Other investments Noncurrent receivables Total investments Property Property Less accumulated depreciation Net property Other Assets Goodwill Other intangible assets (net of accumulated amortization - 2019: $3,886; 2018: $3,379) Operating lease right-of-use assets Deferred income tax assets Deferred charges and other assets Total other assets Total Assets Liabilities and Equity Current Liabilities Notes payable Long-term debt due within one year Accounts payable: Trade Other Operating lease liabilities - current Income taxes payable Accrued and other current liabilities Liabilities of discontinued operations - current Total current liabilities Long-Term Debt Pension and other postretirement benefits Asbestos-related liabilities Operating lease liabilities - noncurrent Other noncurrent obligations Stockholders' Equity Common stock (2019: authorized 5,000,000,000 shares and issued 751,228,644 shares of $0.01 par value each: 2018: authorized and issued 100 shares of $0.01 par value each) Additional paid-in capital Retained earnings Accumulated other comprehensive loss Unearned ESOP shares Treasury stock at cost (2019: 9,729,834 shares; 2018: zero shares) Dow Inc.'s stockholders' equity Noncontrolling interests Total equity Total Liabilities and Equity See Notes to the Consolidated Financial Statements. 586 $ 298 338 435 4.456 2,479 3.889 2,064 421 522 2,762 557 10,679 16,322 10,083 1,060 1,739 6,547 2,931 4,488 15,547 19,754 8.926 1,142 4.709 7,042 35,460 9,885) (134) 8 7,325 17,045 (10,246) (91) (500) 13,541 553 14,094 60,524 32,483 1,138 33,621 83,699 $ S Notes to the Consolidated Financial Statements NOTE 11 - INVENTORIES The following table provides a breakdown of inventories: $ Inventories at Dec 31 In millions Finished goods Work in process Raw materials Supplies Total Adjustment of inventories to a LIFO basis Total inventories 2019 3,505 $ 1,122 628 2018 4,313 1,335 674 826 7,148 (249) 6,899 845 $ 6,100 $ 114 6,214 $ $ Inventories valued on a LIFO basis represented 32 percent of the total inventories at December 31, 2019 and 34 percent the total inventories at December 31, 2018 NOTE 18 - LEASES Future minimum lease payments for operating leases accounted for under ASC 840, "Leases," with remaining non- cancelable terms in excess of one year at December 31, 2018 were as follows: $ Minimum Lease Commitments at Dec 31, 2018 In millions 2019 2020 2021 2022 2023 2024 and thereafter Total 366 329 296 269 227 855 2,342 $
