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Scott, Financial Accounting Theory, 6th Edition Instructor’s Manual Chapter 2 Suggested Solutions to Questions and Problems 1. P.V. Ltd. Income Statement for Year 2 Accretion of discount (10% Ãâ€" 286.36) $28.64 P.V. Ltd. Balance Sheet As at Time 2 Financial Asset Cash Shareholders’ Equity $315.00 Opening balance Net income $286.36 28.64 Capital Asset Present value 0.00 $315.00 $315.00 Note that cash includes interest at 10% on opening cash balance of $150. 2. Suppose that P.V. Ltd. paid a dividend of $10 at the end of year 1 (any portion of year 1 net income would do). Then, its year 2 opening net assets are $276.36, and net income would be: P.V. Ltd. Income Statement For Year 2†¦show more content†¦To illustrate, the present value of the firm at time 0 is $260.33 and expected net income is $26.03 for year 1. Similarly, the present value of the firm at time 1 is $236.36 or $336.36 depending on state realization, and expected net income for year 2 is $23.64 or $33.64. In each case the market expects the firm to earn 10% on opening value. This 10% of opening value is accretion of discount. Copyright  © 2012 Pearson Canada Inc 14 Scott, Financial Accounting Theory, 6th Edition Instructor’s Manual 4. Chapter 2 The procedure here is similar to that used in Question 2. Assume that the good economy state is realized for year 1. Assume also that P.V. Ltd. pays a dividend of, say, $40 at time 1. If the good economy state is also realized in year 2, P.V.’s year 2 net income will then be: P.V. Ltd. Income Statement For Year 2 (good economy in year 2) Accretion of discount [(336.36 – 40) Ãâ€".10] 29.64 Abnormal earnings, as a result of good state realization in year 2 (200 – 150) 50.00 Net income year 2 $79.64 PV’s balance sheet at the end of year 2 will then be: P.V. Ltd. Balance Sheet As at Time 2 Financial Asset Shareholders’ Equity Cash (200 - 40 + 200 + 16) $376.00 Opening balance $336.36 Less: Dividend end Capital Asset 0.00 of year 1 40.00 $296.36 Add: Net income $376.00 Copyright  © 2012 Pearson Canada Inc 15 79.64 $376.00Show MoreRelatedSolution Manual, Test Bank and Instructor Manuals34836 Words   |  140 PagesDear All, If you need any solution manual, testbank for testbooks from the list, do contact us anytime, we provide competitive prices and fast delivery after payment done. Contact us: smtbportal@gmail.com smtbportal(at)gmail(dot)com 2010 Corporate Partnership Estate and Gift Tax with HR Block TaxCut 4e Pratt Kulsrud Solution Manual 2010 Corporate Partnership Estate and Gift Tax with HR Block TaxCut 4e Pratt Kulsrud Test Bank 2010 Federal Taxation with HR Block TaxCut 4e Pratt Kulsrud