Year 1 Year 2 Year 3

Loan Repayment Schedule: $30,000 $20,000 $10,000

Interest on loan 100,000 100,000 100,000

Total payment $130,000 120,000 110,000

To understand how debt financing is handled on the financial statements, it is useful to briefly discuss the mechanics of a loan. Assume that Sunnyvale takes out a $300,000 bank loan with a maturity (term) of three years. For simplicity, assume that the loan agreement requires payments to the bank as shown in exhibit 4.3.When the loan is first obtained, $300,000 will be added to the long-term debt account and appear on the balance sheet. At the end of the first year, Sunny-vale will pay the bank a total of $130,000, consisting of $30,000 interest on the loan and $100,000 repayment on the principal portion of the loan. The $30,000 interest expense, which is paid to the bank for the use of its money, appears as an expense on the income statement. The $100,000 principal repayment, on the other hand, is not an expense item; rather, it reduces the $300,000 carried in the long-term debt account on the balance sheet. In the second year, the loan will be treated in a similar way: $20,000 in interest will appear as an expense on the income statement, and the loan amount on the balance sheet will be reduced by $100,000.

PART A:

Equity balance, end of year :______

Equity balance, beginning of year :____

Increase in equity during year :___

Net income for the year : ____

PART B:

(has three parts below I will insert what my teacher explained and the guide for it) please help !

In this video, I will be demonstrating problem $4.00 on page $151.00 of the textbook. The balance sheet reports a snapshot of the financial position of a healthcare organization. At a particular point. In time it shows the assets of the organization and the claims against those assets represented through the liabilities and equity of the organization, the assets, or the resources owned by the organization, which will bring future benefit to the organization. The creditors claims against the assets are the liabilities which are the organizations, future, financial obligations resulting from past transactions. Creditors have the 1st claim against the assets in the event of liquidation. Equity is the residual claim against the assets or the amount of assets financed by non debt sources in a for profit organization equity. As the residual claim of the owners against the assets in a nonprofit organization, equity represents the net assets or simply the dollar value of assets remaining. After subtracting out the liabilities In a not for profit organization. Some of the equity capital reported on the balance sheet could have come from charitable contributions or from government grants, but the majority of it is usually obtained by reinvesting the earnings of the organization within the business. In a not for profit organization, all earnings must be reinvested into the business. In a for profit organization. The equity capital reported on the balance sheet may have come from investments by the owners or by reinvesting the earnings of that organise earnings of the organization within the business. And like in the not for profit organizations for profit organizations do not have to reinvest all our names back into the business. They may choose to pay out. So that earnings to the owners in the form of dividends Problem 4.2 focuses on the equity of an organization. In order to work this problem, it is important to understand what causes the equity of an organization to change from year to year. In part a, we are dealing with a not for profit organization. Remember in this case, all our earnings must be reinvested into the organization. The only other change in equity and equity would be if additional equity capital were to be received during the year, such as charitable contributions or government grants. The problem doesn't mention any additional equity capital, so we will assume the activity causing equity to increase is simply the reinvestment of the annual earnings. So i'm problem for Point 2. They tell us that Samara tayo health care had a beginning equity balance of $1380000.00 at the beginning of the year. And at the end of the year, its equity balance was 1980000. In part a, we are to assume that San Mateo is a not for profit organization and they want us to determine what was its net income for the period. So assuming that equity was 1.38 $1000000.00 at the beginning of the year, and then say it had increased to $1980000.00 at the end of the year, we then look to see that in total the equity increased by $600000.00 In this case, because San Mateo, we are assuming is a not for profit organization and there were no additional capital contributions where assuming that this increase was solely the result of investing reinvesting the net income back into the business. Therefore, we can say that the net income for the year under this scenario was $600000.00., In part b. we will now assume that San Mateo healthcare is investor owned, meaning it is a for profit organization. Remember that in a for profit organization, equity may increase as a result of additional owner investment through stock sales or as a result of the reinvestment of net income through retained earnings. And it may, decrease as a result of payments of dividends to the owners. So for part b., I've set up a spreadsheet where I have the beginning equity balance, which just will remain at 1000000 380000 as given to us in the problem and the ending equity balance,, which is given to us in the problem as 1000000 980000. So in part b., since it is a for profit business, I have noted that increases could come from additional stock sales. Increases could come by reinvesting the net income for the year and decreases could occur because of dividends being paid out during the year. In part b. One, they tell us to assume no additional stock sales and no payment of dividends. Therefore, the increase in equity would be solely due to the net income for the year. So once again, in this case, we get to determine the net income by comparing that in the balance to the beginning balance and noting that the increase was solely related to net income., And the net income would be $600000.00. In this case, In part b., they tell us to assume that $200000.00 worth of dividends were paid during the year. These dividends would reduce equity, So did to her. There were no additional stock sales. So I'll put a 0 there. So to determine net income for the year, we must consider the beginning equity balance reduced by the payment of dividends. And then compare this to the ending equity balance to determine the net income for the year. So I will take the in the balance. I will subtract out the beginning balance after taking into consideration that it has been reduced by dividends. In this case, I calculate net income to be 800000. So they started with 1000000 380000 dollars of equity. This equity was increased by the net income earned during the year of 800008 was decreased. 520-0000 dollars of dividends paid out during the year, which then brought it to the ending. But balance for the year of $1980000.00. In part b. 30, we are to assume that there were $300000.00 worth of additional stock sales. 00 worth of dividends paid the stock. In addition to the $200000. So would increase equity while the dividends would reduce equity. So to determine the net income for the year under these assumptions, we must consider the beginning equity balance reduced by the payment of dividends and increase by the sale of stock. And then compare this to the ending equity balance. So to determine the amount of net income, I'm going to take the ending balance for the year and I am going to subtract out the beginning balance after taking into account the increase for the stock sales and the decrease for the dividends paid. In this case, I determine that the net income calculates to be $500000.00 for the year. So under these assumptions, they started with an equity balance of 1000000 380000. This is increased by additional stock sales of 300008 is increased by net income for the year. 500008 is then decreased for the dividends paid during the year of 200000. 200000. Once again, bringing us to the ending equity balance of 1000000, 980000.