3.Problem 2-6 Income statement [LO1]
Given the following information, prepare an income statement for the Dental Drilling Company. (Input all amounts as positive values. Omit the “$” sign in your response.)
Selling and administrative expense
$
73,000
Depreciation expense
78,000
Sales
521,000
Interest expense
48,000
Cost of goods sold
200,000
Taxes
47,000
6.Problem 2-15 Development of balance sheet [LO3]
Arrange the following items in proper balance sheet presentation (Be sure to list the assets in order of their liquidity. Input all amounts as positive values. Omit the “$” sign in your response):
Accumulated depreciation
$
309,000
Retained earnings
187,000
Cash
14,000
Bonds payable
136,000
Accounts receivable
54,000
Plant and equipmentoriginal cost
775,000
Accounts payable
35,000
Allowance for bad debts
9,000
Common stock, $1 par, 100,000 shares outstanding
100,000
Inventory
70,000
Preferred stock, $59 par, 1,000 shares outstanding
59,000
Marketable securities
24,000
Investments
20,000
Notes payable
34,000
Capital paid in excess of par (common stock)
88,000
9. Problem 2-18 Price-earnings ratio [LO2]
Botox Facial Care had earnings after taxes of $364,000 in 2009 with 200,000 shares of stock outstanding. The stock price was $93.80. In 2010, earnings after taxes increased to $424,000 with the same 200,000 shares outstanding. The stock price was $133.00.
(a)
Compute earnings per share and the P/E ratio for 2009. The P/E ratio equals the stock price divided by earnings per share. (Enter only numeric values.Round your intermediate calculations and final answers to 2 decimal places. Omit the “$” sign in your response.)
Earnings per share
$
P/E ratio
(b)
Compute earnings per share and the P/E ratio for 2010. (Enter only numeric values.Round your intermediate calculations and final answers to 2 decimal places. Omit the “$” sign in your response.)
Earnings per share
P/E ratio
(c)
Why the P/E ratio changed? (Round your intermediate calculations and final answers to 2 decimal places. Omit the “%” sign in your response.)
10.Problem 2-21 Depreciation and cash flow [LO5]
The Jupiter Corporation has a gross profit of $789,000 and $249,000 in depreciation expense. The Saturn Corporation also has $789,000 in gross profit, with $46,600 in depreciation expense. Selling and administrative expense is $216,000 for each company.
(a)
Given that the tax rate is 40 percent, compute the cash flow for both companies. (Omit the “$” sign in your response.)
Jupiter
Saturn
Cash flow
$
$
(b)
What is the difference in cash flow between the two firms? (Omit the “$” sign in your response.)
Difference in cash flow
$
12.Problem 2-24 Book value and market value [LO2, 3]
The Rockford Corporation has assets of $444,000, current liabilities of $51,000, and long-term liabilities of $71,000. There is $35,500 in preferred stock outstanding; 20,000 shares of common stock have been issued.
(a)
Compute book value (net worth) per share. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Book value per share
$
(b)
If there is $25,700 in earnings available to common stockholders and Rockfords stock has a P/E of 19 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Current price
$
(c)
What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Ratio
13.Problem 2-25 Book value and market value [LO2, 3]
Amigo Software, Inc., has total assets of $824,000, current liabilities of $164,000, and long-term liabilities of $133,000. There is $83,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued.
(a)
Compute book value (net worth) per share. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Book value per share
$
(b)
If there is $53,000 in earnings available to common stockholders and the firms stock has a P/E of 28 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Current price
$
(c)
What is the ratio of market value per share to book value per share? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Ratio
14.Problem 2-28 Statement of cash flows [LO4]
Given is the Income Statement for the year ended December 31, 2010, Statement of Retained Earnings for the year ended December 31, 2010 and Comparative Balance Sheets for 2009 and 2010 of Jeter Corporation:
JETER CORPORATION
Income Statement
For the Year Ended December 31, 2010
Sales
$
3,940,000
Cost of goods sold
2,580,000
Gross profits
1,360,000
Selling and administrative expense
697,000
Depreciation expense
272,000
Operating income
391,000
Interest expense
88,000
Earnings before taxes
303,000
Taxes
234,000
Earnings after taxes
69,000
Preferred stock dividends
10,000
Earnings available to common stockholders
$
59,000
Shares outstanding
150,000
Earnings per share
$
0.39
Statement of Retained Earnings
For the Year Ended December 31, 2010
Retained earnings, balance, January 1, 2010
$
342,700
Add: Earnings available to common stockholders, 2010
59,000
Deduct: Cash dividends declared and paid in 2010
218,000
Retained earnings, balance, December 31, 2010
$
183,700
Comparative Balance Sheets
For 2009 and 2010
Year-End
2009
Year-End
2010
Assets
Current assets:
Cash
$
171,000
$
127,000
Accounts receivable (net)
543,000
546,000
Inventory
656,000
697,000
Prepaid expenses
63,500
39,700
Total current assets
1,433,500
1,409,700
Investments (long-term securities)
92,000
81,100
Plant and equipment
2,250,000
2,730,000
Less: Accumulated depreciation
1,750,000
2,022,000
Net plant and equipment
500,000
708,000
Total assets
$
2,025,500
$
2,198,800
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable
$
365,000
$
626,000
Notes payable
514,000
514,000
Accrued expenses
79,800
57,100
Total current liabilities
958,800
1,197,100
Long-term liabilities:
Bonds payable, 2015
134,000
228,000
Total liabilities
1,092,800
1,425,100
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
342,700
183,700
Total stockholders equity
932,700
773,700
Total liabilities and stockholders equity
$
2,025,500
$
2,198,800
Prepare a statement of cash flows for the Jeter Corporation. (Amounts to be deducted should be indicated with a minus sign. Omit the “$” sign in your response.)
16.Problem 2-4 Operating profit [LO1]
A-Rod Fishing Supplies had sales of $2,180,000 and cost of goods sold of $1,280,000. Selling and administrative expenses represented 15 percent of sales. Depreciation was 6 percent of the total assets of $4,840,000.
What was the firms operating profit? (Omit the “$” sign in your response.)
Operating profit
$
20.Problem 3-17 Interpreting results from the Du Pont system of analysis [LO3]
Assume the following data for Cable Corporation and Multi-Media, Inc.
Cable
Corporation
Multi
Media, Inc.
Net income
$
32,400
$
127,000
Sales
377,000
2,830,000
Total assets
408,000
925,000
Total debt
195,000
547,000
Stockholders’ equity
213,000
378,000
(a-1)
Compute return on stockholders equity for both firms. (Round your answers to 2 decimal places. Omit the “%” sign in your response.)
Return on
stockholders equity
Cable Corporation
Multi Media, Inc.
(a-2)
Which firm has the higher return?
(b)
Compute the following additional ratios for both firms. (Enter only numeric values rounded to 2 decimal places. Omit the “%” sign in your response.)
22.Problem 3-24 Debt utilization and Du Pont system of analysis [LO3]
Using the income statement for J. Lo Wedding Gowns, compute the following ratios:
J. LO WEDDING GOWNS
Income Statement
Sales
$
291,000
Less: Cost of goods sold
172,000
Gross profit
119,000
Less: Selling and administrative expense
45,800
Less: Lease expense
13,300
Operating profit*
$
59,900
Less: Interest expense
8,300
Earnings before taxes
$
51,600
Less: Taxes (30%)
20,640
Earnings after taxes
$
30,960
*Equals income before interest and taxes.
(a)
Compute the interest coverage ratio. (Enter only numeric value rounded to 2 decimal places.)
(b)
Compute the fixed charge coverage ratio. (Enter only numeric value rounded to 2 decimal places.)
(c)
The total assets for this company equal $236,000. Compute the return on assets (investment). (Round your answer to 2 decimal places. Omit the “%” sign in your response.)
25.Problem 3-31 Inflation and inventory accounting effect [LO5]
The Canton Corporation shows the following income statement. The firm uses FIFO inventory accounting.
CANTON CORPORATION
Income Statement for 2010
Sales
$
224,750
(15,500 units at $14.50)
Cost of goods sold
135,625
(15,500 units at $8.75)
Gross profit
89,125
Selling and administrative expense
13,485
Depreciation
11,000
Operating profit
64,640
Taxes (30%)
19,392
After tax income
$
45,248
(a)
Assume in 2011 the same 15,500-unit volume is maintained, but the sales price increases by 10 percent. Because of FIFO inventory policy, old inventory will still be charged off at $8.75 per unit. Also assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute after tax income for 2011. (Round your answer to the nearest whole number. Omit the “$” sign in your response.)
After tax income
(b)
In part a, by what percent did after tax income increase as a result of a 10 percent increase in the sales price? (Round your answer to 2 decimal places. Omit the “%” sign in your response.)
Gain in after tax income
(c)
Now assume that in 2012 the volume remains constant at 15,500 units, but the sales price decreases by 15 percent from its year 2011 level. Also, because of FIFO inventory policy, cost of goods sold reflects the inflationary conditions of the prior year and is $9.25 per unit. Further, assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute the after tax income. (Round your sales price to 2 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)
After tax income
27. Problem 3-36 Comparing all the ratios [LO2]
SNIDER CORPORATION
Balance Sheet
December 31, 2010
Assets
Current assets:
Cash
$
51,800
Marketable securities
24,200
Accounts receivable (net)
174,000
Inventory
227,000
Total current assets
$
477,000
Investments
63,500
Plant and equipment.
646,000
Less: Accumulated depreciation
(246,000)
Net plant and equipment
400,000
Total assets
$
940,500
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
91,100
Notes payable
73,400
Accrued taxes
18,400
Total current liabilities
182,900
Long-term liabilities:
Bonds payable
156,700
Total liabilities
$
339,600
Stockholders’ equity
Preferred stock, $50 par value
100,000
Common stock, $1 par value
80,000
Capital paid in excess of par
190,000
Retained earnings
230,900
Total stockholders’ equity
600,900
Total liabilities and stockholders’ equity
$
940,500
SNIDER CORPORATION
Income Statement
For the Year Ending December 31, 2010
Sales (on credit)
$
2,034,000
Less: Cost of goods sold
1,308,000
Gross profit
726,000
Less: Selling and administrative expenses
488,000
*
Operating profit (EBIT)
238,000
Less: Interest expense
34,900
Earnings before taxes (EBT)
203,100
Less: Taxes
89,300
Earnings after taxes (EAT)
$
113,800
*Includes $36,600 in lease payments.
Using the above financial statements for the Snider Corporation, calculate the following ratios. (Enter only numeric values rounded to 2 decimal places. Omit the “%” sign in your response.)
28. Problem 3-37 Ratio computation and analysis [LO2]
Given the financial statements for Jones Corporation and Smith Corporation:
JONES CORPORATION
Current Assets
Liabilities
Cash
$
127,000
Accounts payable
$
136,000
Accounts receivable
186,400
Bonds payable (long term)
81,600
Inventory
55,400
Long-Term Assets
Stockholders’ Equity
Fixed assets
$
553,000
Common stock
$
150,000
Less: Accumulated depreciation
(150,900)
Paid-in capital
70,000
Net fixed assets*
402,100
Retained earnings
333,300
Total assets
$
770,900
Total liabilities and equity
$
770,900
Sales (on credit)
$
1,339,000
Cost of goods sold
788,000
Gross profit
551,000
Selling and administrative expense
334,000
Less: Depreciation expense
54,500
Operating profit
162,500
Interest expense
10,200
Earnings before taxes
152,300
Tax expense
99,000
Net income
$
53,300
*Use net fixed assets in computing fixed asset turnover.
Includes $15,200 in lease payments.
SMITH CORPORATION
Current Assets
Liabilities
Cash
$
40,000
Accounts payable
$
76,700
Marketable securities
13,200
Bonds payable (long term)
246,000
Accounts receivable
78,800
Inventory
77,800
Long-Term Assets
Stockholders’ Equity
Fixed assets
$
551,000
Common stock
$
75,000
Less: Accumulated depreciation
(258,600)
Paid-in capital
30,000
Net fixed assets*
292,400
Retained earnings
74,500
Total assets
$
502,200
Total liabilities and equity
$
502,200
*Use net fixed assets in computing fixed asset turnover.
SMITH CORPORATION
Sales (on credit)
$
1,190,000
Cost of goods sold
695,000
Gross profit
495,000
Selling and administrative expense
257,000
Less: Depreciation expense
58,800
Operating profit
179,200
Interest expense
30,900
Earnings before taxes
148,300
Tax expense
55,700
Net income
$
92,600
Includes $15,200 in lease payments.
(a-1)
Compute the following ratios. (Use 360 days for a year. Enter only numeric values rounded to 2 decimal places. Omit the “%” sign in your response.)
(a-2)
To which one would you, as credit manager for a supplier, approve the extension of (short-term) trade credit?
(b)
In which one would you buy stocks?
rev: 10_05_2012
29.Problem 4-1 Growth and financing [LO4]
Philip Morris is excited because sales for his clothing company are expected to double from $730,000 to $1,460,000 next year. Philip notes that net assets (Assets Liabilities) will remain at 50 percent of Sales. His clothing firm will enjoy a 10 percent return on total sales. He will start the year with $330,000 in the bank and is already bragging about the two Mercedes he will buy and the European vacation he will take.
(a)
Compute his likely cash balance or deficit for the end of the year. Start with beginning cash and subtract the asset buildup (equal to 50 percent of the sales increase) and add in profit. (Negative amount should be indicated by a minus sign. Omit the “$” sign in your response.)
(b)
Does his optimistic outlook for his cash position appear to be correct?
31.Problem 4-4 Sales projections [LO2]
The Alliance Corp. expects to sell the following number of units of copper cables at the prices indicated, under three different scenarios in the economy. The probability of each outcome is indicated.
Outcome
Probability
Units
Price
A
.20
290
$
33
B
.70
500
48
C
.10
770
58
What is the expected value of the total sales projection? (Omit the “$” sign in your response.)
32.Problem 4-6 Sales projections [LO2]
Cyber Security Systems had sales of 4,000 units at $90 per unit last year. The marketing manager projects a 25 percent increase in unit volume sales this year with a 30 percent price increase. Returned merchandise will represent 12 percent of total sales.
What is your net dollar sales projection for this year? (Omit the “$” sign in your response.)
Net sales
$
34.Problem 4-11 Cost of goods sold-FIFO [LO2]
On December 31 of last year, Wolfson Corporation had in inventory 540 units of its product, which cost $21 per unit to produce. During January, the company produced 940 units at a cost of $24 per unit.
Assuming that Wolfson Corporation sold 980 units in January, what was the cost of goods sold (assume FIFO inventory accounting)? (Omit the “$” sign in your response.)
Cost of goods sold
$
38.Problem 4-19 Schedule of cash receipts [LO2]
Watt’s Lighting Stores made the following sales projections for the next six months. All sales are credit sales.
March
$
32,000
June
$ 36,000
April
38,000
July
44,000
May
27,000
August
46,000
Sales in January and February were $35,000 and $34,000, respectively.
Experience has shown that of total sales, 10 percent are uncollectible, 30 percent are collected in the month of sale, 40 percent are collected in the following month, and 20 percent are collected two months after sale.
(a)
Prepare a monthly cash receipts schedule for the firm for March through August. (Omit the “$” sign in your response.)
(b)
Of the sales expected to be made during the six months from March through August, how much will still be uncollected at the end of August? How much of this is expected to be collected later? (Omit the “$” sign in your response.)
Amount
Uncollected
$
Expected to be collected
$
40. Problem 4-28 Percent-of-sales method [LO3]
The Manning Company has financial statements as shown below, which are representative of the companys historical average.
The firm is expecting a 40 percent increase in sales next year, and management is concerned about the companys need for external funds. The increase in sales is expected to be carried out without any expansion of fixed assets, but rather through more efficient asset utilization in the existing store. Among liabilities, only current liabilities vary directly with sales.
Income Statement
Sales
$
210,000
Expenses
151,900
Earnings before interest and taxes
$
58,100
Interest
9,300
Earnings before taxes
$
48,800
Taxes
17,300
Earnings after taxes
$
31,500
Dividends
$
9,450
Balance Sheet
Assets
Liabilities and Stockholders’ Equity
Cash
$
4,000
Accounts payable
$
22,200
Accounts receivable
56,000
Accrued wages
2,350
Inventory
66,000
Accrued taxes
4,850
Current assets
$
126,000
Current liabilities
$
29,400
Fixed assets
88,000
Notes payable
9,300
Long-term debt
26,500
Common stock
127,000
Retained earnings
21,800
Total assets
$
214,000
Total liabilities and
stockholders’ equity
$
214,000
Using the percent-of-sales method, determine the amount of external financing needs, or a surplus of funds required by the company. (Hint: A profit margin and payout ratio must be found from the income statement.) (Do not round intermediate calculations. Input the amount as positive value. Omit the “$” sign in your response.)
rev: 09_10_2011
