QUESTION

# Given the financial statements for Jones Corporation and Smith Corporation:

award:

1 out of

1.00 point

Frantic Fast Foods had earnings after taxes of \$1,140,000 in the year 2012 with 316,000 shares outstanding. On January 1, 2013, the firm issued 31,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 26 percent.

a.            Compute earnings per share for the year 2012. (Round your answer to 2 decimal places.)

b.            Compute earnings per share for the year 2013. (Round your answer to 2 decimal places.)

Earnings per share           \$              3.61 ± 1%

Earnings per share           \$              4.14 ± 1%

award:

1 out of

1.00 point

Hillary Swank Clothiers had sales of \$442,000 and cost of goods sold of \$326,000.

a.            What is the gross profit margin (ratio of gross profit to sales)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

b.            If the average firm in the clothing industry had a gross profit of 36 percent, how is the firm doing?

award:

1              out of

point

A-Rod Fishing Supplies had sales of \$2,460,000 and cost of goods sold of \$1,310,000. Selling and administrative expenses represented 14 percent of sales. Depreciation was 12 percent of the total assets of

\$4,930,000.

What was the firm’s operating profit?

Gross profit        \$ 1,150,000

Depreciation expense   591,600

award:

2              out of

points

Given the following information, prepare in good form an income statement for the Dental Drilling Company.

(Input all amounts as positive values.)

Selling and administrative expense          \$ 108,000

Depreciation expense   73,000

Sales      551,000

Interest expense             48,000

Cost of goods sold           180,000

Taxes    53,000

Selling and administrative expense          \$ 108,000

Depreciation expense   73,000

Sales      551,000

Interest expense             48,000

Cost of goods sold           180,000

Taxes    53,000

award:

2 out of

2.00 points

Given the following information, prepare in good form an income statement for Jonas Brothers Cough Drops. (Input all amounts as positive values.)

Selling and administrative expense          \$              289,000

Depreciation expense   193,000

Sales      1,720,000

Interest expense             123,000

Cost of goods sold           508,000

Taxes    168,000

Selling and administrative expense          \$              289,000

Depreciation expense   193,000

Sales      1,720,000

Interest expense             123,000

Cost of goods sold           508,000

Taxes    168,000

Cost of goods sold           508,000

Gross profit        \$                             1,212,000 ± .1%

Operating profit               \$              730,000 ± .1%

Taxes    168,000

Earnings after taxes        \$              439,000 ± .1%

award:

2              out of

2.00 points

Stein Books Inc. sold 1,500 finance textbooks for \$200 each to High Tuition University in 2013. These books cost

\$160 to produce. Stein Books spent \$12,200 (selling expense) to convince the university to buy its books.

Depreciation expense for the year was \$15,100. In addition, Stein Books borrowed \$101,000 on January 1, 2013, on which the company paid 14 percent interest. Both the interest and principal of the loan were paid on December 31, 2013. The publishing firm’s tax rate is 30 percent.

Prepare an income statement for Stein Books. (Input all amounts as positive values.)

Earnings after taxes        \$                             12,992 ± .1%

award:

3              out of

3.00 points

Arrange  the  following  items  in  proper  balance  sheet  presentation:  (Be  sure  to  list  the  assets  and

liabilities in order of their liquidity. Input all amounts as positive values.)

Accumulated depreciation           \$ 395,000

Retained earnings           9,000

Cash      15,000

Bonds payable  215,000

Accounts receivable       54,000

Plant and equipment—original cost         764,000

Accounts payable            44,000

Common stock, \$1 par, 100,000 shares outstanding          100,000

Inventory            70,000

Preferred stock, \$52 par, 1,000 shares outstanding           52,000

Marketable securities    24,000

Investments      24,000

Notes payable   35,000

Capital paid in excess of par (common stock)      94,000

Assets                   Balance Sheet

Liabilities and Stockholders’ Equity

Current Assets:                                 Current Liabilities:

Cash                      \$ 15,000                Accounts payable                                                          \$ 44,000

Marketable securities                    24,000   Notes payable                                                                    35,000

Accounts receivable       \$ 54,000

Less: Allowance for bad debts    7,000                     Total current liabilities    \$ 79,000

Long-term liabilities

Net accounts receivable                               47,000   Bonds payable                                                                 215,000

Inventory                            70,000

Total current assets                        \$ 156,000             Total liabilities    \$ 294,000

Other Assets:                                    Stockholders’ Equity:

Investments                      24,000   Common stock  \$              100,000

Fixed assets:                                      Preferred stock                52,000

Plant and equipment     \$ 764,000                             Capital paid in excess of par        94,000

Less: Accumulated depreciation                395,000                 Retained earnings           9,000

Net plant and equipment                             369,000                 Total stockholders’ equity            \$ 255,000

Total assets                        \$ 549,000             Total liabilities and stockholders’ equity \$ 549,000

Arrange the following items in proper balance sheet presentation: (Be sure to list the assets and liabilities in order of their liquidity. Input all amounts as positive values.)

Accumulated depreciation           \$ 395,000 Retained earnings                        9,000

Cash      15,000

Bonds payable  215,000

Accounts receivable       54,000

Plant and equipment—original cost         764,000

Accounts payable            44,000

Common stock, \$1 par, 100,000 shares outstanding          100,000 Inventory                            70,000

Preferred stock, \$52 par, 1,000 shares outstanding           52,000 Marketable securities      24,000

Investments      24,000

Notes payable   35,000

Capital paid in excess of par (common stock)      94,000

Balance Sheet

Assets   Liabilities and Stockholders’ Equity

Current Assets: Current Liabilities:

15,000   Accounts payable            \$              44,000

Marketable securities    24,000   Notes payable   35,000

54,000

Less: Allowance for bad debts    7,000     Total current liabilities    \$              79,000 ± .1%

Long-term liabilities

Net accounts receivable               47,000 ± .1%       Bonds payable  215,000

Inventory            70,000

156,000 ± .1%     Total liabilities    \$              294,000 ± .1%

Other Assets:    Stockholders’ Equity:

764,000 Capital paid in excess of par                        94,000

Less: Accumulated depreciation                395,000                                 Retained earnings                           9,000 Net plant and equipment                                         369,000 ± .1%         Total stockholders’ equity       \$       255,000 ± .1% Total assets                   \$       549,000 ± .1%                     Total liabilities and stockholders’ equity      \$       549,000 ± .1%

award:

2 out of

2.00 points

Elite Trailer Parks has an operating profit of \$300,000. Interest expense for the year was \$38,100; preferred dividends paid were \$29,500; and common dividends paid were \$36,700. The tax was \$69,100. The firm has 16,400 shares of common stock outstanding.

a.            Calculate the earnings per share and the common dividends per share for Elite Trailer Parks. (Round your answers to 2 decimal places.)

b.            What was the increase in retained earnings for the year?

Elite Trailer Parks has an operating profit of \$300,000. Interest expense for the year was \$38,100; preferred dividends paid were \$29,500; and common dividends paid were \$36,700. The tax was \$69,100. The firm has 16,400 shares of common stock outstanding.

a.            Calculate the earnings per share and the common dividends per share for Elite Trailer Parks. (Round your answers to 2 decimal places.)

Earnings per share           \$              9.96 ± 1%

Common dividends per share    \$              2.24 ± 1%

b.            What was the increase in retained earnings for the year?

126,600 ± .1%

award:

1              out of

1.00 point

Quantum Technology had \$664,000 of retained earnings on December 31, 2013. The company paid common dividends of \$31,300 in 2013 and had retained earnings of \$588,000 on December 31, 2012.

a.            How much did Quantum Technology earn during 2013?

b.            What would earnings per share be if 44,900 shares of common stock were outstanding? (Round your answer to 2 decimal places.)

Quantum Technology

Retained earnings, December 31, 2013  \$              664,000

Less: Retained earnings, December 31, 2012       588,000

Change in retained earnings       \$              76,000

Earnings available to common stockholders         \$              107,300

award:

2              out of

2.00 points

Botox Facial Care had earnings after taxes of \$284,000 in 2012 with 200,000 shares of stock outstanding. The stock price was \$45.80. In 2013, earnings after taxes increased to \$350,000 with the same 200,000 shares outstanding. The stock price was \$56.00.

a.            Compute earnings per share and the P/E ratio for 2012. (The P/E ratio equals the stock price divided by earnings per share.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

b.            Compute earnings per share and the P/E ratio for 2013. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

c.             Why did the P/E ratio change? (Do not round intemediate calculations. Input your answers as percents rounded to 2 decimal places.)

Botox Facial Care had earnings after taxes of \$284,000 in 2012 with 200,000 shares of stock outstanding. The stock price was \$45.80. In 2013, earnings after taxes increased to \$350,000 with the same 200,000 shares outstanding. The stock price was \$56.00.

a.            Compute earnings per share and the P/E ratio for 2012. (The P/E ratio equals the stock price divided by earnings per share.) (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Earnings per share           \$              1.42 ± 1%

P/E ratio               32.25 ± 1%           times

b.            Compute earnings per share and the P/E ratio for 2013. (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Earnings per share           \$              1.75 ± 1%

P/E ratio               32.00 ± 1%           times

c.             Why did the P/E ratio change? (Do not round intemediate calculations. Input your answers as percents rounded to 2 decimal places.)

The stock price increased by     22.27 ± 1%  percent while EPS increased by          23.24 ± 1%  percent.

award:

2 out of

2.00 points

The Rogers Corporation has a gross profit of \$784,000 and \$314,000 in depreciation expense. The Evans Corporation also has \$784,000 in gross profit, with \$48,900 in depreciation expense. Selling and administrative expense is \$200,000 for each company.

a.            Given that the tax rate is 40 percent, compute the cash flow for both companies.

b.            Calculate the difference in cash flow between the two firms.

Rogers Corporation – Evans Corporation

Rogers                  Evans

Gross profit        \$ 784,000                             \$ 784,000

Selling and adm. expense            200,000                 200,000

Depreciation      314,000                 48,900

Operating profit               \$ 270,000                             \$ 535,100

Taxes (40%)        108,000                 214,040

Earnings after taxes        \$ 162,000                             \$ 321,060

Plus: Depreciation expense         314,000                 48,900

Cash flow            \$ 476,000                             \$ 369,960

award:

1              out of

1.00 point

Nova Electrics anticipated cash flow from operating activities of \$8 million in 2011. It will need to spend \$5.5 million on capital investments in order to remain competitive within the industry. Common stock dividends are projected at \$.60 million and preferred stock dividends at \$.40 million.

a.            What is the firm’s projected free cash flow for the year 2011? (Enter your answer in millions of dollars rounded to 2 decimal places.)

b.            What does the concept of free cash flow represent?

Free cash flow represents the funds that are available for special financing activities, such as a leveraged buyout.

Nova Electronics

Cash flow from operating activities          \$  8.00 million

Less:

Capital expenditures      5.50

Common stock dividends             .60

Preferred stock dividends            .40

award:

2              out of

2.00 points

The Holtzman Corporation has assets of \$414,000, current liabilities of \$72,000, and long-term liabilities   of

\$134,000. There is \$32,600 in preferred stock outstanding; 20,000 shares of common stock have been issued.

a.            Compute book value (net worth) per share. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

b.            If there is \$34,400 in earnings available to common stockholders, and Holtzman’s stock has a P/E of 16 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

c.             What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

The Holtzman Corporation has assets of \$414,000, current liabilities of \$72,000, and long-term liabilities   of

\$134,000. There is \$32,600 in preferred stock outstanding; 20,000 shares of common stock have been issued.

a.            Compute book value (net worth) per share. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

8.77 ± 1%

b.            If there is \$34,400 in earnings available to common stockholders, and Holtzman’s stock has a P/E of 16 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

27.52 ± 1%

c.             What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Market value to book value                      3.14 ± 1%  times

award:

3              out of

3.00 points

Amigo Software Inc. has total assets of \$848,000, current liabilities of \$243,000, and long-term liabilities   of

\$161,000. There is \$110,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued.

a.            Compute book value (net worth) per share. (Round your answer to 2 decimal places.)

b.            If there is \$55,600 in earnings available to common stockholders and the firm’s stock has a P/E of 24 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round you final answer to 2 decimal places.)

c.             What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round you final answer to 2 decimal places.)

Amigo Software Inc. has total assets of \$848,000, current liabilities of \$243,000, and long-term liabilities   of

\$161,000. There is \$110,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued.

a.            Compute book value (net worth) per share. (Round your answer to 2 decimal places.)

11.13 ± 1%

b.            If there is \$55,600 in earnings available to common stockholders and the firm’s stock has a P/E of 24 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round you final answer to 2 decimal places.)

44.48 ± 1%

c.             What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round you final answer to 2 decimal places.)

Market value to book value                      4.00 ± 1%  times

award:

4              out of

4.00 points

For December 31, 2012, the balance sheet of Baxter Corporation was as follows:

Current Assets                  Liabilities

Cash      \$  18,000               Accounts payable            \$              20,000

Accounts receivable       23,000   Notes payable   28,000

Inventory            33,000   Bonds payable  58,000

Prepaid expenses            12,800

Fixed Assets                       Stockholders’ Equity

Gross plant and equipment         \$ 258,000             Preferred stock                \$              28,000

Less: Accumulated depreciation                51,600   Common stock  63,000

Paid-in capital    33,000

Net plant and equipment             206,400 Retained earnings           63,200

Total assets        \$ 293,200             Total liabilities and stockholders’ equity \$ 293,200

Sales for 2013 were \$260,000, and the cost of goods sold was 55 percent of sales. Selling and administrative expense was \$26,000. Depreciation expense was 11 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 9 percent, while the interest rate on the bonds payable was 15 percent. This interest expense is based on December 31, 2012 balances. The tax rate averaged 35 percent.

\$2,800 in preferred stock dividends were paid and \$8,750 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.

During 2013, the cash balance and prepaid expenses balances were unchanged. Accounts receivable and inventory increased by 9 percent. A new machine was purchased on December 31, 2013, at a cost of

\$43,000.

Accounts payable increased by 25 percent. Notes payable increased by \$6,800 and bonds payable decreased by \$14,000, both at the end of the year. The preferred stock, common stock, and capital paid in excess of par accounts did not change.

a.            Prepare an income statement for 2013. (Round EPS answer to 2 decimal places. Input all amounts as positive values.)

b.            Prepare a statement of retained earnings for 2013. (Input all amounts as positive values.)

BAXTER CORPORATION

2013 Income Statement

Retained earnings balance, January 1, 2013          \$ 63,200

Add: Earnings available to common stockholders, 2013                   30,610

Less: Cash dividend declared in 2013       8,750

Retained earnings balance, December 31, 2013                  \$ 85,060

c.             Prepare a balance sheet as of December 31, 2013. (Be sure to list the assets and liabilities in order of their liquidity. Input all amounts as positive values.)

Current Assets  Liabilities

Cash      \$ 18,000                Accounts payable            \$ 25,000

Accounts receivable       25,070   Notes payable   34,800

44,000

Prepaid expenses            12,800

Total current assets        \$ 91,840                Total liabilities    \$ 103,800

For December 31, 2012, the balance sheet of Baxter Corporation was as follows:

Current Assets                  Liabilities

Cash      \$  18,000               Accounts payable            \$              20,000

Accounts receivable       23,000   Notes payable   28,000

Inventory            33,000   Bonds payable  58,000

Prepaid expenses            12,800

Fixed Assets                       Stockholders’ Equity

Gross plant and equipment         \$ 258,000             Preferred stock                \$              28,000

Less: Accumulated depreciation                51,600   Common stock  63,000

Paid-in capital    33,000

Net plant and equipment             206,400 Retained earnings           63,200

Total assets        \$ 293,200             Total liabilities and stockholders’ equity \$ 293,200

Sales for 2013 were \$260,000, and the cost of goods sold was 55 percent of sales. Selling and administrative expense was \$26,000. Depreciation expense was 11 percent of plant and equipment (gross) at the beginning of the year. Interest expense for the notes payable was 9 percent, while the interest rate on the bonds payable was 15 percent. This interest expense is based on December 31, 2012 balances. The tax rate averaged 35 percent.

\$2,800 in preferred stock dividends were paid and \$8,750 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.

During 2013, the cash balance and prepaid expenses balances were unchanged. Accounts receivable and inventory increased by 9 percent. A new machine was purchased on December 31, 2013, at a cost of

\$43,000.

Accounts payable increased by 25 percent. Notes payable increased by \$6,800 and bonds payable decreased by \$14,000, both at the end of the year. The preferred stock, common stock, and capital paid in excess of par accounts did not change.

a.            Prepare an income statement for 2013. (Round EPS answer to 2 decimal places. Input all amounts as positive values.)

Sales      \$              260,000

Cost of goods sold                         143,000

Gross profit

\$

117,000 ± .1%

Depreciation expense                 28,380

Operating profit               \$                             62,620 ± .1%

Interest expense             11,220

Earnings before taxes    \$              51,400 ± .1%

Taxes                  17,990

Earnings after taxes        \$                             33,410 ± .1%

Preferred stock dividends            2,800

Earnings available to common stockholders         \$              30,610 ± .1%

Shares outstanding

10,000

Earnings per share           \$              3.06 ± 1%

b.            Prepare a statement of retained earnings for 2013. (Input all amounts as positive values.)

BAXTER CORPORATION

2013 Income Statement

Retained earnings balance, January 1, 2013          \$              63,200

Add: Earnings available to common stockholders, 2013                 30,610 ± .1%

Less: Cash dividend declared in 2013       8,750

Retained earnings balance, December 31, 2013  \$              85,060 ± .1%

c.             Prepare a balance sheet as of December 31, 2013. (Be sure to list the assets and liabilities in order of their liquidity. Input all amounts as positive values.)

Current Assets  Liabilities

Cash

Accounts receivable       25,070 ± .1%       Notes payable   34,800 ± .1%

Inventory                          35,970 ± .1%       Bonds payable                  44,000 ± .1%

Prepaid expenses            12,800

Total current assets        \$              91,840 ± .1%       Total liabilities    \$              103,800 ± .1%

Gross plant and equipment

\$

301,000 ± .1%

Preferred stock                \$              28,000

79,980 ± .1%       Common stock                  63,000

Capital paid in excess of par        33,000

Net plant and equipment                           221,020 ± .1%     Retained earnings                           85,060 ± .1%

209,060 ± .1%

award:

2 out of

2.00 points

Refer to the following financial statements for Crosby Corporation:

CROSBY CORPORATION

Income Statement

For the Year Ended December 31, 2011

Sales      \$3,650,000

Cost of goods sold           2,330,000

Gross profit        \$1,320,000

Depreciation expense   291,000

Interest expense             82,900

Earnings before taxes    \$              282,100

Taxes    141,000

Earnings after taxes        \$              141,100

Preferred stock dividends            10,000

Earnings available to common stockholders         \$              131,100

Shares outstanding         150,000

Earnings per share           \$              .87

Statement of Retained Earnings For the Year Ended December 31, 2011

Retained earnings, balance, January 1, 2011        \$ 119,900 Add: Earnings available to common stockholders, 2011                131,100 Deduct: Cash dividends declared and paid in 2011            197,000

Retained earnings, balance, December 31, 2011                \$              54,000

Comparative Balance Sheets For 2010 and 2011

Year-End

2010       Year-End

2011

Assets

Current assets:

Cash      \$              144,000 \$              118,500

Accounts receivable (net)            505,000 524,000

Inventory            624,000 670,000

Prepaid expenses            62,700   32,400

Total current assets                        \$ 1,335,700                          \$ 1,344,900

Investments (long-term securities)                         97,500                   87,800

Gross plant and equipment         \$  2,320,000                         \$  2,870,000

Less: Accumulated depreciation                1,920,000                             2,211,000

Net plant and equipment                             400,000                 659,000

Total assets                        \$ 1,833,200                          \$ 2,091,700

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable                            \$              323,000                 \$              641,000

Notes payable                   534,000                 534,000

Accrued expenses                           77,300                   52,700

Total current liabilities                    \$              934,300                 \$ 1,227,700

Long-term liabilities:

Bonds payable, 2011       189,000                 220,000

Total liabilities    \$ 1,123,300                          \$ 1,447,700

Stockholders’ equity:

Preferred stock, \$100 par value \$              90,000                   \$              90,000

Common stock, \$1 par value       150,000                 150,000

Capital paid in excess of par        350,000                 350,000

Retained earnings           119,900                 54,000

Total stockholders’ equity            \$              709,900 \$              644,000 Total liabilities and stockholders’ equity                \$ 1,833,200                \$ 2,091,700

a.            Prepare a statement of cash flows for the Crosby Corporation: (Amounts to be deducted should be indicated with a minus sign.)

CROSBY CORPORATION

Statement of Cash Flows

For the Year Ended December 31, 2011 Cash flows from operating activities:

Adjustments to determine cash  flow from operating activities:

Increase in inventory                     -46,000

Decrease in prepaid expenses                   30,300

Decrease in accrued expenses                   -24,600

Cash flows from investing activities:

Decrease in investments              \$              9,700

Increase in plant and equipment              -550,000

Net cash flows from investing activities                 -540,300

Cash flows from financing activities:

Increase in bonds payable           \$              31,000

Preferred stock dividends paid  -10,000

Common stock dividends paid   -197,000

Net cash flows from financing activities                 -176,000

Net increase (decrease) in cash flows                     \$ -25,500

b.            Compute the book value per common share for both 2010 and 2011 for the Crosby Corporation. (Round your answers to 2 decimals places.)

Book value 2010                               \$ 4.13

2011       \$ 3.69

c.             If the market value of a share of common stock is 2.7 times book value for 2011, what is the firm’s P/E ratio for 2011? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Refer to the following financial statements for Crosby Corporation:

CROSBY CORPORATION

Income Statement

For the Year Ended December 31, 2011

Sales      \$3,650,000

Cost of goods sold           2,330,000

Gross profit        \$1,320,000

Depreciation expense   291,000

Operating income            \$              365,000

Interest expense             82,900

Earnings before taxes    \$              282,100

Taxes    141,000

Earnings after taxes        \$              141,100

Preferred stock dividends            10,000

Earnings available to common stockholders         \$              131,100

Shares outstanding         150,000

Earnings per share           \$              .87

Statement of Retained Earnings For the Year Ended December 31, 2011

Retained earnings, balance, January 1, 2011        \$ 119,900 Add: Earnings available to common stockholders, 2011                131,100 Deduct: Cash dividends declared and paid in 2011            197,000

Retained earnings, balance, December 31, 2011                \$              54,000

Comparative Balance Sheets For 2010 and 2011

Year-End              Year-End

2010       2011

Assets

Current assets:

Cash      \$              144,000 \$              118,500

Accounts receivable (net)            505,000 524,000

Inventory            624,000 670,000

Prepaid expenses            62,700   32,400

Total current assets                        \$ 1,335,700                          \$ 1,344,900

Investments (long-term securities)                         97,500                   87,800

Gross plant and equipment         \$  2,320,000                         \$  2,870,000

Less: Accumulated depreciation                1,920,000                             2,211,000

Net plant and equipment                             400,000                 659,000

Total assets                        \$ 1,833,200                          \$ 2,091,700

Liabilities and Stockholders’ Equity

Current liabilities:

Accounts payable                            \$              323,000                 \$              641,000

Notes payable                   534,000                 534,000

Accrued expenses                           77,300                   52,700

Total current liabilities                    \$              934,300                 \$ 1,227,700

Long-term liabilities:

Bonds payable, 2011       189,000                 220,000

Total liabilities    \$ 1,123,300                          \$ 1,447,700

Stockholders’ equity:

Preferred stock, \$100 par value \$              90,000                   \$              90,000

Common stock, \$1 par value       150,000                 150,000

Capital paid in excess of par        350,000                 350,000

Retained earnings           119,900                 54,000

Total stockholders’ equity            \$              709,900 \$              644,000 Total liabilities and stockholders’ equity                \$ 1,833,200                \$ 2,091,700

a.            Prepare a statement of cash flows for the Crosby Corporation: (Amounts to be deducted should be indicated with a minus sign.)

CROSBY CORPORATION

Statement of Cash Flows

For the Year Ended December 31, 2011 Cash flows from operating activities:

Adjustments to determine cash  flow from operating activities:

Cash flows from investing activities:

Cash flows from financing activities:

Preferred stock dividends paid

Common stock dividends paid

Net cash flows from financing activities

Net increase (decrease) in cash flows     \$              -25,500 ± .1%

b.            Compute the book value per common share for both 2010 and 2011 for the Crosby Corporation. (Round your answers to 2 decimals places.)

2010       \$              4.13 ± 1%

2011       \$              3.69 ± 1%

c.             If the market value of a share of common stock is 2.7 times book value for 2011, what is the firm’s P/E ratio for 2011? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

P/E ratio                             11.41 ± 1%   times

award:

1              out of

1.00 point

Gates Appliances has a return-on-assets (investment) ratio of 17 percent.

a.            If the debt-to-total-assets ratio is 60 percent, what is the return on equity? (Input your answer as a percent rounded to 2 decimal places.)

b.            If the firm had no debt, what would the return-on-equity ratio be? (Input your answer as a percent rounded to 2 decimal places.)

award:

2              out of

2.00 points

Using the Du Pont method, evaluate the effects of the following relationships for the Butters Corporation.

a.            Butters Corporation has a profit margin of 9 percent and its return on assets (investment) is 20 percent. What is its assets turnover? (Round your answer to 2 decimal places.)

b.            If the Butters Corporation has a debt-to-total-assets ratio of 45.00 percent, what would the firm’s return on equity be? (Input your answer as a percent rounded to 2 decimal places.)

c.             What would happen to return on equity if the debt-to-total-assets ratio decreased to 40.00 percent?

award:

2 out of

2.00 points

Jerry Rice and Grain Stores has \$4,030,000 in yearly sales. The firm earns 2.5 percent on each dollar of sales and turns over its assets 2 times per year. It has \$165,000 in current liabilities and \$323,000 in long- term liabilities.

a.            What is its return on stockholders’ equity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

b.            If the asset base remains the same as computed in part a, but total asset turnover goes up to 2.50, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Jerry Rice and Grain Stores has \$4,030,000 in yearly sales. The firm earns 2.5 percent on each dollar of sales and turns over its assets 2 times per year. It has \$165,000 in current liabilities and \$323,000 in long- term liabilities.

a.            What is its return on stockholders’ equity? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Return on stockholders' equity                                6.60 ± 1%  %

b.            If the asset base remains the same as computed in part a, but total asset turnover goes up to 2.50, what will be the new return on stockholders’ equity? Assume that the profit margin stays the same as do current and long-term liabilities. (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

New return on stockholders' equity                      8.25 ± 1%  %

award:

2 out of

2.00 points

Assume the following data for Cable Corporation and Multi-Media Inc.

Cable     Multi-Media Inc.

Net income        \$              39,800   \$              190,000

Sales      352,000 2,170,000

Total assets        409,000 966,000

Total debt           234,000 545,000

Stockholders' equity       175,000 421,000

a-1. Compute return on stockholders’ equity for both firms. (Input your answers as a percent rounded to 2 decimal places.)

Return on Stockholders’ Equity

Cable Corporation           22.74     %

Multi-Media, Inc.             45.13     %

a-2.

Which firm has the higher return?

Multi-Media Inc.

b.            Compute   the   following additional        ratios  for             both  firms.  (Input  your  Net  income/Sales,     Net

income/Total assets and Debt/Total asset answers as a percent rounded to 2 decimal places. Round your Sales/Total assets answers to 2 decimal places.)

Cable Corporation                           Multi-Media Inc.

Net income/Sales            11.31     %            8.76        %

Net income/Total assets               9.73        %            19.67     %

Sales/Total assets            .86          times     2.25        times

Debt/Total assets            57.21     %            56.42     %

Assume the following data for Cable Corporation and Multi-Media Inc.

Cable

Corporation        Multi-Media Inc.

Net income        \$              39,800   \$              190,000

Sales      352,000 2,170,000

Total assets        409,000 966,000

Total debt           234,000 545,000

Stockholders' equity       175,000 421,000

a-1. Compute return on stockholders’ equity for both firms. (Input your answers as a percent rounded to 2 decimal places.)

Return on Stockholders’ Equity

Cable Corporation           22.74 ± 1%  %

Multi-Media, Inc.             45.13 ± 1%           %

a-2.  Which firm has the higher return?

Multi-Media Inc.

b. Compute the following additional ratios for both firms. (Input your Net income/Sales, Net income/Total assets and Debt/Total asset answers as a percent rounded to 2 decimal places. Round your Sales/Total assets answers to 2 decimal places.)

Cable Corporation           Multi-Media Inc.

Net income/Sales            11.31 ± 1%  %     8.76 ± 1%  %

Net income/Total assets               9.73 ± 1%  %                       19.67 ± 1%  %

Sales/Total assets            .86 ± 1%               times     2.25 ± 1%  times

Debt/Total assets            57.21 ± 1%           %                           56.42 ± 1%  %

award:

2 out of

points

The balance sheet for Stud Clothiers is shown next. Sales for the year were \$3,190,000, with 75 percent of sales sold on credit.

STUD CLOTHIERS

Balance Sheet 20XX

Assets   Liabilities and Equity

Cash      \$              24,000   Accounts payable            \$              279,000

Accounts receivable       283,000 Accrued taxes   107,000

Inventory            266,000 Bonds payable (long-term)          130,000

Plant and equipment     450,000 Common stock  100,000

Paid-in capital    150,000

Retained earnings           257,000

Total assets        \$1,023,000           Total liabilities and equity             \$ 1,023,000

Compute the following ratios: (Use a 360-day year. Do not round intermediate calculations. Round  your answers to 2 decimal places. Input your debt-to-total assets answer as a percent rounded to 2 decimal places.)

a.  Current ratio                1.48        times

b.  Quick ratio    .80          times

c.  Debt-to-total-assets ratio       50.44     %

d.  Asset turnover            3.12        times

e.  Average collection period      42.58     days

The balance sheet for Stud Clothiers is shown next. Sales for the year were \$3,190,000, with 75 percent of sales sold on credit.

STUD CLOTHIERS

Balance Sheet 20XX

Assets   Liabilities and Equity

Cash      \$              24,000   Accounts payable            \$              279,000

Accounts receivable       283,000 Accrued taxes   107,000

Inventory            266,000 Bonds payable (long-term)          130,000

Plant and equipment     450,000 Common stock  100,000

Paid-in capital    150,000

Retained earnings           257,000

Total assets        \$1,023,000           Total liabilities and equity             \$ 1,023,000

Compute the following ratios: (Use a 360-day year. Do not round intermediate calculations. Round  your answers to 2 decimal places. Input your debt-to-total assets answer as a percent rounded to 2 decimal places.)

a.            Current ratio      1.48 ± 1%  times

b.            Quick ratio          .80 ± 1%  times

c.             Debt-to-total-assets ratio            50.44 ± 1%  %

d.            Asset turnover  3.12 ± 1%  times

e.            Average collection period            42.58 ± 1%  days

award:

2 out of

2.00 points

Using the income statement for Times Mirror and Glass Co., compute the following ratios:

TIMES MIRROR AND GLASS Co.

Income Statement

Sales      \$ 223,000

Cost of goods sold           130,000

Gross profit        \$              93,000

Lease expense  19,100

Operating profit*             \$              29,900

Interest expense             10,600

Earnings before taxes    \$              19,300

Taxes (30%)        7,720

Earnings after taxes        \$              11,580

*Equals income before interest and taxes.

a.            Compute the interest coverage ratio. (Round your answer to 2 decimal places.)

b.            Compute the fixed charge coverage ratio. (Round your answer to 2 decimal places.)

The total assets for this company equal \$174,000. Set up the equation for the Du Pont system of ratio analysis.

c.             Compute the profit margin ratio. (Input your answer as a percent rounded to 2 decimal places.)

d.            Compute the total asset turnover ratio. (Round your answer to 2 decimal places.)

e.            Compute the return on assets (investment). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Using the income statement for Times Mirror and Glass Co., compute the following ratios:

TIMES MIRROR AND GLASS Co.

Income Statement

Sales      \$ 223,000

Cost of goods sold           130,000

Gross profit        \$              93,000

Lease expense  19,100

Operating profit*             \$              29,900

Interest expense             10,600

Earnings before taxes    \$              19,300

Taxes (30%)        7,720

Earnings after taxes        \$              11,580

*Equals income before interest and taxes.

a.            Compute the interest coverage ratio. (Round your answer to 2 decimal places.)

Interest coverage                          2.82 ± 1%  times

b.            Compute the fixed charge coverage ratio. (Round your answer to 2 decimal places.)

Fixed charge coverage                 1.65 ± 1%  times

The total assets for this company equal \$174,000. Set up the equation for the Du Pont system of ratio analysis.

c.             Compute the profit margin ratio. (Input your answer as a percent rounded to 2 decimal places.)

Profit margin                    5.19 ± 1%  %

d.            Compute the total asset turnover ratio. (Round your answer to 2 decimal places.)

Total asset turnover                     1.28 ± 1%  times

e.            Compute the return on assets (investment). (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Return on assets                            6.66 ± 1%  %

award:

1              out of

1.00 point

A firm has net income before interest and taxes of \$179,000 and interest expense of \$29,500.

a.            What is the times-interest-earned ratio? (Round your answer to 2 decimal places.)

b.            If the firm’s lease payments are \$44,000, what is the fixed charge coverage? (Round your answer to 2 decimal places.)

award:

2              out of

2.00 points

Quantum Moving Company has the following data.  Industry information also is shown.

2011       \$ 388,000             \$ 2,868,000          12.8 %

2012       412,000 3,244,000             8.2

2013       408,000 3,762,000             4.4

Year

Debt

Total Assets        Industry Data on Debt/Total Assets

2011       \$ 1,692,000          \$ 2,868,000          55.4 %

2012       1,740,000             3,244,000             49.0

2013       1,981,000             3,762,000             30.0

a.            Calculate the company's data in terms of: (Input your answers as a percent rounded to 1 decimal place.)

2011                       2012                       2013

Net income/Total assets               13.5        %            12.7        %            10.8        %

Debt/Total assets            59.0        %            53.6        %            52.7        %

b.            As an industry analyst comparing the firm to the industry, are you likely to praise or criticize the firm in terms of:

Praise/Criticize

Quantum Moving Company has the following data.  Industry information also is shown.

2011       \$ 388,000             \$ 2,868,000          12.8 %

2012       412,000 3,244,000             8.2

2013       408,000 3,762,000             4.4

Year

Debt

Total Assets        Industry Data on Debt/Total Assets

2011       \$ 1,692,000          \$ 2,868,000          55.4 %

2012       1,740,000             3,244,000             49.0

2013       1,981,000             3,762,000             30.0

a.            Calculate the company's data in terms of: (Input your answers as a percent rounded to 1 decimal place.)

2011       2012       2013

Net income/Total assets               13.5 ± 1%  %       12.7 ± 1%  %       10.8 ± 1%  %

Debt/Total assets            59.0 ± 1%  %                       53.6 ± 1%  %                       52.7 ± 1%  %

b.            As an industry analyst comparing the firm to the industry, are you likely to praise or criticize the firm in terms of:

Praise/Criticize  Net income/Total assets              Praise

Debt/Total assets            Criticize

award:

1.34 out of

2.00 points

The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.

CANTON CORPORATION

Income Statement for 2013

Sales      \$ 152,100             (11,700 units at \$13.00) Cost of goods sold                            93,600   (11,700 units at \$8.00)

Gross profit        \$              58,500

Depreciation      19,400

Operating profit               \$              29,974

Taxes (30%)        8,992

Aftertax income               \$              20,982

a.            Assume in 2014 the same 11,700-unit volume is maintained, but that the sales price increases by 10 percent. Because of FIFO inventory policy, old inventory will still be charged off at \$8.00 per unit. Also assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute aftertax income for 2014. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

b.            In part a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

c.             Now assume that in 2015 the volume remains constant at 11,700 units, but the sales price decreases by 15 percent from its year 2014 level. Also, because of FIFO inventory policy, cost of goods sold reflects the inflationary conditions of the prior year and is \$8.50 per unit. Further, assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute the aftertax income. (Round the sales price per unit to 2 decimal places but do not round any other intermediate calculations. Round your final answer to the nearest whole dollar amount.)

The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.

CANTON CORPORATION

Income Statement for 2013

Sales      \$ 152,100             (11,700 units at \$13.00)

Cost of goods sold           93,600   (11,700 units at \$8.00)

Gross profit        \$              58,500

Depreciation      19,400

Operating profit               \$              29,974

Taxes (30%)        8,992

Aftertax income               \$              20,982

a.            Assume in 2014 the same 11,700-unit volume is maintained, but that the sales price increases by 10 percent. Because of FIFO inventory policy, old inventory will still be charged off at \$8.00 per unit. Also assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute aftertax income for 2014. (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Aftertax income               \$              30,990 ± .1%

b.            In part a, by what percent did aftertax income increase as a result of a 10 percent increase in the sales price? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

Gain in aftertax income                               47.70 ± 1%  %

c.             Now assume that in 2015 the volume remains constant at 11,700 units, but the sales price decreases by 15 percent from its year 2014 level. Also, because of FIFO inventory policy, cost of goods sold reflects the inflationary conditions of the prior year and is \$8.50 per unit. Further, assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute the aftertax income. (Round the sales price per unit to 2 decimal places but do not round any other intermediate calculations. Round your final answer to the nearest whole dollar amount.)

Aftertax income               \$              10,420 ± 0.1%

award:

3              out of

3.00 points

The Griggs

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