19 Jun 535-WEEK2HMK #13
PLEASE SOLVE AND ANSWER QUESTION 13 BELOW, WITH EXLANTION WRITTEN OUT
Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars)
2013 2012
Sales $11,000 $10,000
Operating costs excluding depreciation 9,360 8,500
Depreciation and amortization 380 360
Earnings before interest and taxes $ 1,260 $ 1,140
Less interest 120 100
Pre-tax income $ 1,140 $ 1,040
Taxes (40%) 456 416
Net income available to common stockholders $ 684 $ 624
Common dividends $ 220 $ 200
Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars)
2013 2012
Assets
Cash $ 550 $ 500
Short-term investments 110 100
Accounts receivable 2,750 2,500
Inventories 1,650 1,500
Total current assets $5,060 $4,600
Net plant and equipment 3,850 3,500
Total assets $8,910 $8,100
Liabilities and Equity
Accounts payable $1,100 $1,000
Accruals 550 500
Notes payable 384 200
Total current liabilities $2,034 $1,700
Long-term debt 1,100 1,000
Total liabilities $3,134 $2,700
Common stock 4,312 4,400
Retained earnings 1,464 1,000
Total common equity $5,776 $5,400
Total liabilities and equity $8,910 $8,100
Loss Carryback and Carryforward
13. The Bookbinder Company has made $150,000 before taxes during each of the last 15 years, and it expects to make $150,000 a year before taxes in the future. However, in 2013 the firm incurred a loss of $650,000. The firm will claim a tax credit at the time it files its 2013 income tax return, and it will receive a check from the U.S. Treasury. Show how it calculates this credit, and then indicate the firm’s tax liability for each of the next 5 years. Assume a 40% tax rate on all income to ease the calculations.
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