80 PART 1 Introduction to Managerial Finance
LG1LG1LG12–6 Impact of net income on a firm’s balance sheet Conrad Air, Inc., reported net
income of $1,365,000 for the year ended December 31, 2003. Show the effect of
these funds on the firm’s balance sheet for the previous year (below) in each of
the scenarios following the balance sheet.a. Conrad paid no dividends during the year and invested the funds in mar-
ketable securities.
b. Conrad paid dividends totaling $500,000 and used the balance of the net
income to retire (pay off) long-term debt.
c. Conrad paid dividends totaling $500,000 and invested the balance of the net
income in building a new hangar.
d. Conrad paid out all $1,365,000 as dividends to its stockholders.2–7 Initial sale price of common stock Beck Corporation has one issue of preferred
stock and one issue of common stock outstanding. Given Beck’s stockholders’
equity account that follows, determine the original price per share at which the
firm sold its single issue of common stock.2–8 Statement of retained earnings Hayes Enterprises began 2003 with a retained
earnings balance of $928,000. During 2003, the firm earned $377,000 after
taxes. From this amount, preferred stockholders were paid $47,000 in divi-
dends. At year-end 2003, the firm’s retained earnings totaled $1,048,000. The
firm had 140,000 shares of common stock outstanding during 2003.Stockholders’ Equity ($000)Preferred stock $ 125
Common stock ($0.75 par, 300,000 shares outstanding) 225
Paid-in capital in excess of par on common stock 2,625Retained earnings (^9) (^0) (^0)
Total stockholders’ equity $
3
,
8
7
5
Conrad Air, Inc.
Balance Sheet
as of December 31, 2003
Assets Liabilities and Stockholders’ Equity
Cash $ 120,000 Accounts payable $ 70,000
Marketable securities 35,000 Short-term notes (^5) (^5) , (^0) (^0) (^0)
Accounts receivable 45,000 Current liabilities $ 125,000
Inventories (^1) (^3) (^0) , (^0) (^0) (^0) Long-term debt $ (^2) , (^7) (^0) (^0) , (^0) (^0) (^0)
Current assets $ (^3) (^3) (^0) , (^0) (^0) (^0) Total liabilities $ (^2) , (^8) (^2) (^5) , (^0) (^0) (^0)
Equipment $2,970,000 Common stock $ 500,000
Buildings (^1) , (^6) (^0) (^0) , (^0) (^0) (^0) Retained earnings (^1) , (^5) (^7) (^5) , (^0) (^0) (^0)
Fixed assets $ (^4) , (^5) (^7) (^0) , (^0) (^0) (^0) Stockholders’ equity $ (^2) , (^0) (^7) (^5) , (^0) (^0) (^0)
Total assets $
4
,
9
0
0
,
0
0
0
Total liabilities and equity $
4
,
9
0
0
,
0
0
0