Microsoft Word peachtree case study
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- TOTAL LIABILITIES
- TOTAL LIABILITIES EQUITY 6,468,000$ (2,737,100)$ 3,730,900$ 57.7%Adjusted Balance Sheet
| CURRENT LIABILITIES Notes Payable (Short‐term) 135,000 $ 135,000 $ Accounts Payable 10,000 $ Other Current Liabilities 3,000 $ 100.0% TOTAL CURRENT LIABILITES 148,000 $ 148,000 $ 100.0% LONG TERM DEBT Notes Payable 1,831,000 $ 1,831,000 $ Deferred Income Taxes 183,300 $ 183,300 $ TOTAL LIABILITIES 1,831,000 $ 1,831,000 $ Common Stock 55,000 $ Paid In Capital 465,000 $ 465,000 $ Retained Earnings (2,920,400) $ 1,048,600 $ 26.4% TOTAL EQUITY 4,489,000 $ (2,737,100) $ 1,751,900 $ 39.0% Net Change in Assets/Liabilities to Retained Earnings TOTAL LIABILITIES & EQUITY 6,468,000 $ (2,737,100) $ 3,730,900 $ 57.7% Adjusted Balance Sheet Page 110 of 141 Excess Earnings Reasonable Rate Method Theoretically, the rate of return to be accorded the net tangible assets of an entity should incorporate the risk related to an investment in the subject’s net tangible assets. Although there is no one directly recorded source of such rates for small closely‐held companies, market rates can be reasonably determined for the components that makeup the investment, namely the debt and equity required to finance such companies. The Excess Earnings Reasonable Rate Method (formally referred to as Safe Rate Method) is another derivative of the Excess Earnings Return on Assets Method. This method acquired its name because it applies a reasonable rate of return to the adjusted net assets rather than an industry rate of return as in the Excess Earnings Treasury Method. Another distinction between this method and the Excess Earnings Treasury Method is the reasonable rate of return is applied to the latest year’s balance of adjusted net assets rather than to an unweighted or weighted average of net assets (as in the Excess Earnings Treasury Method. Similar to the Excess Earnings Treasury Method, this method is an income‐ oriented and asset‐oriented approach. It is also based on the theory that a business’s total value is the sum of the adjusted net assets and the value of the intangibles as determined by capitalizing the business’s excess earnings. The amount of earnings capitalized is those earnings, which exceed a reasonable rate of return on the business’s adjusted net assets. An estimated equity return of 19.06% has been accorded an investment in the subject, which has already been discussed and determined in Section 5.2.2 Discount and Capitalization Rates, Table 32 – Capitalization Rate – Build‐Up Method. The collateralized debt portion at traditional loan to asset value ratios was accorded a rate of 9.00% (the prevailing prime rate of 8.00% plus 1.00%), based on discussions with local commercial bankers. The first step that must be done is to calculate a reasonable rate of return on the net tangible assets |