Text exercises week 4 - Essay Example

The balance sheet of Technical Inc. for the year ended 31st December 2006 indicates the overall position of the company at that specific time. The statement provides a summary of the assets and liabilities and the long term debts. The shareholder’s equity and retained earnings are also included in the statement. The balance sheet provides a clear view on what the company owns and what it owes, in other words, the value of the company is depicted in the balance sheet. It also includes the details of the investments made by the investors and shareholders.

The sum of all the liabilities and the shareholders’ equity always needs to be equal to assets. This statement provides the retained earnings for a specific period of time. The statement of Technical Inc shows that the company has total retained earnings of almost $73,100 as of 31st December 2006. The statement outlines the changes in the retained earnings for specific periods. These are generally prepared in accordance to the General Accepted Accounting Principles. The statement of retained earnings can be reconciled with the beginning and ending of the retained earnings for a specific period of time here 1st January 2006 until 31st December 2006.

The retained earnings for a period can be obtained as the net of the previous retained earnings along with that of the current year. If the interest rate increases, the amount required after 20 years (from part a) will be lesser as the present value of the $ 20,000 required for 30 years will be lower. The reason is that the discount rate will be higher, which will reduce the amount required. An increase in the interest rate will also lower the amount required now (from part b), as higher interest will earn higher returns and hence the future value of the investment will be higher.

This will lead to a lesser investment to obtain the required amount. An increase in the earnings rate will reduce the single deposit amount required computed in part a. The