Ducky Corp. operates under ideal conditions of uncertainty. Its cash flows depend crucially on the success of
Question:
Ducky Corp. operates under ideal conditions of uncertainty. Its cash flows depend crucially on the success of the UO football team. On January 1, 2020, Ducky acquired equipment to be used in its operations. The equipment will last two years, at which time its salvage value will be zero. Ducky financed the equipment by issuing common shares.In 2020, net cash flows will be $800 if the UO football team has a winning season and $200 if it has a losing season. In 2021, cash flows will be $1,200 if the team has a winning season and $300 if it has a losing season. In each year, the probability that UO will have a winning season is .90 and the probability that it will have a losing season is .10. The interest rate in the economy is 5% for both years. Ducky pays a dividend of $50 at the end of 2020. No dividend is paid at the end of 2021.
Required:
a.In 2020 UO has a winning season. Prepare a balance sheet as of the end of 2020 and an income statement for 2020 using value-in-use accounting.
b.In 2021 UO has another winning season. Prepare a balance sheet as of the end of 2021 and an income statement for 2021 using value-in-use accounting.
Expert Answer:
a Assets Equipment Net 1000 Cash 800 Liabilities Equity Common Shares 1000 Retained Earnings 800 I... View the full answer
