Scott, Financial Accounting Theory, 7th 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% × 286.36)
$28.64
P.V. Ltd. Balance Sheet As at Time 2 Shareholders’ Equity
Financial Asset Cash
$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 Accretion of discount (10% × 276.36)
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$27.64