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1.Problem 2-1 Income statement [LO1]
|
Frantic Fast Foods had earnings after taxes of $1,200,000 in the year 2009 with 322,000 shares outstanding. On January 1, 2010, the firm issued 30,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 24 percent. |
|
(a) |
Compute earnings per share for the year 2009. (Round your answer to 2 decimal places. Omit the “$” sign in your response.) |
|
Earnings per share |
|
(b) |
Compute earnings per share for the year 2010. (Round your answer to 2 decimal places. Omit the “$” sign in your response.) |
2.Problem 2-3 Gross profit [LO1]
|
Hillary Swank Clothiers had sales of $428,000 and cost of goods sold of $260,000. |
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What is the gross profit margin (ratio of gross profit to sales)? (Round your answer to the nearest whole percentage. Omit the “%” sign in your response.) |
|
Gross profit margin |
|
If the average firm in the clothing industry had a gross profit of 35 percent, how is the firm doing? |
|
The firm is . |
3.Problem 2-4 Operating profit [LO1]
|
A-Rod Fishing Supplies had sales of $2,160,000 and cost of goods sold of $1,550,000. Selling and administrative expenses represented 10 percent of sales. Depreciation was 6 percent of the total assets of $4,450,000. |
|
What was the firm’s operating profit? (Omit the “$” sign in your response.) |
|
Operating profit |
4.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 “$” sign in your response.) |
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Selling and administrative expense |
72,000 |
||
|
Depreciation expense |
71,000 |
||
|
Sales |
53 |
6,000 |
|
|
Interest expense |
45,000 |
||
|
Cost of goods sold |
179,000 |
||
|
Taxes |
53,000 |
5.Problem 2-7 Income statement [LO1]
|
Given the following information, prepare an income statement for Jonas Brothers Cough Drops. (Input all amounts as positive values. Omit the “$” sign in your response.) |
|
326,000 |
|
|
196,000 |
|
|
1,600,000 |
|
| 1 |
24,000 |
| 5 |
51,000 |
|
167,000 |
6.Problem 2-11 Depreciation and earnings [LO1]
|
Stein Books, Inc., sold 2,300 finance textbooks for $200 each to High Tuition University in 2010. These books cost $170 to produce. Stein Books spent $12,300 (selling expense) to convince the university to buy its books. |
|
Depreciation expense for the year was $15,500. In addition, Stein Books borrowed $102,000 on January 1, 2010, on which the company paid 17 percent interest. Both the interest and principal of the loan were paid on December 31, 2010. The publishing firm’s tax rate is 30 percent. |
|
Prepare an income statement for Stein Books. (Input all amounts as positive values. Omit the “$” sign in your response.) |
7.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 |
347,000 |
|
Retained earnings |
46,000 |
|
Cash |
14,000 |
|
Bonds payable |
137,000 |
|
Accounts receivable |
|
|
Plant and equipment—original cost |
668,000 |
|
Accounts payable |
38,000 |
|
Allowance for bad debts |
|
|
Common stock, $1 par, 100,000 shares outstanding |
100,000 |
|
Inventory |
|
|
Preferred stock, $52 par, 1,000 shares outstanding |
52,000 |
|
Marketable securities |
28,000 |
|
Investments |
|
|
Notes payable |
39,000 |
|
Capital paid in excess of par (common stock) |
91,000 |
8.Problem 2-16 Earnings per share and retained earnings [LO1, 3]
|
Okra Snack Delights, Inc., has an operating profit of $241,000. Interest expense for the year was $35,800; preferred dividends paid were $34,100; and common dividends paid were $39,600. The tax was $61,400. The firm has 23,700 shares of common stock outstanding. |
|
Calculate the earnings per share and the common dividends per share. (Round your answers to 2 decimal places. Omit the “$” sign in your response.) |
|
Common dividends per share |
|
What was the increase in retained earnings for the year? (Omit the “$” sign in your response.) |
|
Increase in retained earnings |
Busi 320 Dev Shell – 2012 Fall B
Foundations of Financial Management ( Block , 14th ed.)
assignment:
Homework 1
1.Problem 2-1 Income statement [LO1]
Frantic Fast Foods had earnings after taxes of $1,200,000 in the year 2009 with 322,000 shares outstanding. On January 1, 2010, the firm issued 30,000 new shares. Because of the proceeds from these new shares and other operating improvements, earnings after taxes increased by 24 percent.
(a)
Compute earnings per share for the year 2009. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Earnings per share
(b)
Compute earnings per share for the year 2010. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Earnings per share
2.Problem 2-3 Gross profit [LO1]
Hillary Swank Clothiers had sales of $428,000 and cost of goods sold of $260,000.
(a)
What is the gross profit margin (ratio of gross profit to sales)? (Round your answer to the nearest whole percentage. Omit the “%” sign in your response.)
Gross profit margin
(b)
If the average firm in the clothing industry had a gross profit of 35 percent, how is the firm doing?
The firm is .
3.Problem 2-4 Operating profit [LO1]
A-Rod Fishing Supplies had sales of $2,160,000 and cost of goods sold of $1,550,000. Selling and administrative expenses represented 10 percent of sales. Depreciation was 6 percent of the total assets of $4,450,000.
What was the firm’s operating profit? (Omit the “$” sign in your response.)
Operating profit
4.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
$
72,000
Depreciation expense
71,000
Sales
536,000
Interest expense
45,000
Cost of goods sold
179,000
Taxes
53,000
5.Problem 2-7 Income statement [LO1]
Given the following information, prepare an income statement for Jonas Brothers Cough Drops. (Input all amounts as positive values. Omit the “$” sign in your response.)
Selling and administrative expense
$
326,000
Depreciation expense
196,000
Sales
1,600,000
Interest expense
124,000
Cost of goods sold
551,000
Taxes
167,000
6.Problem 2-11 Depreciation and earnings [LO1]
Stein Books, Inc., sold 2,300 finance textbooks for $200 each to High Tuition University in 2010. These books cost $170 to produce. Stein Books spent $12,300 (selling expense) to convince the university to buy its books.
Depreciation expense for the year was $15,500. In addition, Stein Books borrowed $102,000 on January 1, 2010, on which the company paid 17 percent interest. Both the interest and principal of the loan were paid on December 31, 2010. The publishing firm’s tax rate is 30 percent.
Prepare an income statement for Stein Books. (Input all amounts as positive values. Omit the “$” sign in your response.)
7.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
$
347,000
Retained earnings
46,000
Cash
14,000
Bonds payable
137,000
Accounts receivable
51,000
Plant and equipment—original cost
668,000
Accounts payable
38,000
Allowance for bad debts
6,000
Common stock, $1 par, 100,000 shares outstanding
100,000
Inventory
71,000
Preferred stock, $52 par, 1,000 shares outstanding
52,000
Marketable securities
28,000
Investments
24,000
Notes payable
39,000
Capital paid in excess of par (common stock)
91,000
8.Problem 2-16 Earnings per share and retained earnings [LO1, 3]
Okra Snack Delights, Inc., has an operating profit of $241,000. Interest expense for the year was $35,800; preferred dividends paid were $34,100; and common dividends paid were $39,600. The tax was $61,400. The firm has 23,700 shares of common stock outstanding.
(a)
Calculate the earnings per share and the common dividends per share. (Round your answers to 2 decimal places. Omit the “$” sign in your response.)
Earnings per share
Common dividends per share
(b)
What was the increase in retained earnings for the year? (Omit the “$” sign in your response.)
Increase in retained earnings
9.Problem 2-17 Earnings per share and retained earnings [LO1, 3]
Quantum Technology had $644,000 of retained earnings on December 31, 2010. The company paid common dividends of $30,100 in 2010 and had retained earnings of $524,000 on December 31, 2009.
(a)
How much did Quantum Technology earn during 2010? (Omit the “$” sign in your response.)
Earnings available to common stockholders
(b)
What would earnings per share be if 42,700 shares of common stock were outstanding? (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Earnings per share
10.Problem 2-18 Price-earnings ratio [LO2]
Botox Facial Care had earnings after taxes of $325,000 in 2009 with 200,000 shares of stock outstanding. The stock price was $95.60. In 2010, earnings after taxes increased to $407,000 with the same 200,000 shares outstanding. The stock price was $104.00.
(a)
Compute earnings per share and the P/E ratio for 2009. The P/E ratio equals the stock price divided by earnings per share. (Enter only numeric values.Round your intermediate calculations and final answers to 2 decimal places. Omit the “$” 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.)
The stock price % while EPS only
11.Problem 2-21 Depreciation and cash flow [LO5]
The Jupiter Corporation has a gross profit of $726,000 and $337,000 in depreciation expense. The Saturn Corporation also has $726,000 in gross profit, with $48,300 in depreciation expense. Selling and administrative expense is $220,000 for each company.
(a)
Given that the tax rate is 40 percent, compute the cash flow for both companies. (Omit the “$” 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 2-22 Free cash flow [LO4]
Coastal Pipeline, Inc., anticipated cash flow from operating activities of $9 million in 2010. It will need to spend $6.0 million on capital investments in order to remain competitive within the industry. Common stock dividends are projected at $1.20 million and preferred stock dividends at $.65 million.
(a)
What is the firm’s projected free cash flow for the year 2010? (Enter your answer in millions of dollars rounded to 2 decimal places. Omit the “$” sign in your response.)
Free cash flow
$ million
(b)
What does the concept of free cash flow represent?
13.Problem 2-24 Book value and market value [LO2, 3]
The Rockford Corporation has assets of $418,000, current liabilities of $126,000, and long-term liabilities of $131,000. There is $38,700 in preferred stock outstanding; 20,000 shares of common stock have been issued.
(a)
Compute book value (net worth) per share. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Book value per share
$
(b)
If there is $32,300 in earnings available to common stockholders and Rockford’s stock has a P/E of 21 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” 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 2-25 Book value and market value [LO2, 3]
Amigo Software, Inc., has total assets of $820,000, current liabilities of $181,000, and long-term liabilities of $210,000. There is $90,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued.
(a)
Compute book value (net worth) per share. (Round your answer to 2 decimal places. Omit the “$” sign in your response.)
Book value per share
$
(b)
If there is $52,800 in earnings available to common stockholders and the firm’s stock has a P/E of 26 times earnings per share, what is the current price of the stock? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “$” 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
15.Problem 2-27 Construction of income statement and balance sheet [LO1, 3]
On December 31, 2009, the balance sheet of Baxter Corporation was as follows:
Current Assets
Liabilities
Cash
$
13,000
Accounts payable
$
15,000
Accounts receivable
18,000
Notes payable
23,000
Inventory
28,000
Bonds payable
53,000
Prepaid expenses
12,300
Fixed Assets
Stockholders’ Equity
Plant and equipment (gross)
$
253,000
Preferred stock
$
23,000
Less: Accumulated depreciation
50,600
Common stock
58,000
Paid-in capital
28,000
Net plant and equipment
202,400
Retained earnings
73,700
Total assets
$
273,700
Total liabilities and stockholders’ equity
$
273,700
Sales for 2010 were $235,000, and the cost of goods sold was 60 percent of sales. Selling and administrative expense was $23,500. 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, 2009, balances. The tax rate averaged 20 percent.
$2,300 in preferred stock dividends were paid and $9,560 in dividends were paid to common stockholders. There were 10,000 shares of common stock outstanding.
During 2010, 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, 2010, at a cost of $38,000.
Accounts payable increased by 35 percent. Notes payable increased $6,300 and bonds payable decreased $11,500, both at the end of the year. The preferred stock, common stock, and paid-in capital in excess of par accounts did not change.
(a)
Prepare an income statement for 2010. (Round EPS answer to 2 decimal places. Input all amounts as positive values. Omit the “$” sign in your response.)
(b)
Prepare a statement of retained earnings for 2010. (Input all amounts as positive values. Omit the “$” sign in your response.)
(c)
Prepare a balance sheet as of December 31, 2010. (Be sure to list the assets and liabilities in order of their liquidity. Input all amounts as positive values. Omit the “$” sign in your response.)
16.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
$
4,240,000
Cost of goods sold
2,810,000
Gross profits
1,430,000
Selling and administrative expense
738,000
Depreciation expense
236,000
Operating income
456,000
Interest expense
88,000
Earnings before taxes
368,000
Taxes
173,000
Earnings after taxes
195,000
Preferred stock dividends
10,000
Earnings available to common stockholders
$
185,000
Shares outstanding
150,000
Earnings per share
$
1.23
Statement of Retained Earnings
For the Year Ended December 31, 2010
Retained earnings, balance, January 1, 2010
$
320,500
Add: Earnings available to common stockholders, 2010
185,000
Deduct: Cash dividends declared and paid in 2010
181,000
Retained earnings, balance, December 31, 2010
$
324,500
Comparative Balance Sheets
For 2009 and 2010
Year-End
2009
Year-End
2010
Assets
Current assets:
Cash
$
113,000
$
481,600
Accounts receivable (net)
563,000
607,000
Inventory
602,000
664,000
Prepaid expenses
60,900
30,900
Total current assets
1,338,900
1,783,500
Investments (long-term securities)
91,600
89,600
Plant and equipment
2,520,000
2,640,000
Less: Accumulated depreciation
1,940,000
2,176,000
Net plant and equipment
580,000
464,000
Total assets
$
2,010,500
$
2,337,100
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
342,000
$
581,000
Notes payable
548,000
548,000
Accrued expenses
75,000
51,600
Total current liabilities
965,000
1,180,600
Long-term liabilities:
Bonds payable, 2015
135,000
242,000
Total liabilities
1,100,000
1,422,600
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
320,500
324,500
Total stockholders’ equity
910,500
914,500
Total liabilities and stockholders’ equity
$
2,010,500
$
2,337,100
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.)
17.Problem 2-32 P/E ratio [LO2]
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
$
4,190,000
Cost of goods sold
2,820,000
Gross profits
1,370,000
Selling and administrative expense
685,000
Depreciation expense
319,000
Operating income
366,000
Interest expense
89,300
Earnings before taxes
276,700
Taxes
227,000
Earnings after taxes
49,700
Preferred stock dividends
10,000
Earnings available to common stockholders
$
39,700
Shares outstanding
150,000
Earnings per share
$
.26
Statement of Retained Earnings
For the Year Ended December 31, 2010
Retained earnings, balance, January 1, 2010
$
45,900
Add: Earnings available to common stockholders, 2010
39,700
Deduct: Cash dividends declared and paid in 2010
25,000
Retained earnings, balance, December 31, 2010
$
60,600
Comparative Balance Sheets
For 2009 and 2010
Year-End
2009
Year-End
2010
Assets
Current assets:
Cash
$
173,000
$
60,000
Accounts receivable (net)
549,000
573,000
Inventory
645,000
686,000
Prepaid expenses
61,600
37,800
Total current assets
1,428,600
1,356,800
Investments (long-term securities)
90,100
84,700
Plant and equipment
2,240,000
2,930,000
Less: Accumulated depreciation
1,990,000
2,309,000
Net plant and equipment
250,000
621,000
Total assets
$
1,768,700
$
2,062,500
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
307,000
$
555,000
Notes payable
558,000
558,000
Accrued expenses
72,800
50,900
Total current liabilities
937,800
1,163,900
Long-term liabilities:
Bonds payable, 2015
195,000
248,000
Total liabilities
1,132,800
1,411,900
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
45,900
60,600
Total stockholders’ equity
635,900
650,600
Total liabilities and stockholders’ equity
$
1,768,700
$
2,062,500
If the market value of a share of common stock is 3.2 times book value for 2010, what is the firm’s P/E ratio for 2010? (Round your intermediate calculations to 2 decimal places. Enter only numeric value rounded to the nearest whole number.)
P/E ratio
18.Problem 3-14 Du Pont system of analysis [LO3]
The King Card Company has a return-on-assets (investment) ratio of 19 percent.
(a)
If the debt-to-total-assets ratio is 60 percent, what is the return on equity? (Round your answer to 2 decimal places. Omit the “%” sign in your response.)
Return on equity
(b)
If the firm had no debt, what would the return-on-equity ratio be? (Omit the “%” sign in your response.)
Return on equity
19.Problem 3-15 Du Pont system of analysis [LO3]
Using the Du Pont method, evaluate the effects of the following relationships for the Lollar Corporation.
(a)
Lollar Corporation has a profit margin of 5.5 percent and its return on assets (investment) is 8.75 percent. What is its assets turnover ratio?(Enter only numeric value rounded to 2 decimal places.)
Assets turnover ratio
(b)
If the Lollar Corporation has a debt-to-total-assets ratio of 65 percent, what would the firm’s return on equity be? (Round your answer to 2 decimal places. Omit the “%” sign in your response.)
Return on equity
(c)
What would happen to return on equity if the debt-to-total-assets ratio decreased to 60 percent? (Round your answer to 2 decimal places. Omit the “%” sign in your response.)
Return on equity
20.Problem 3-16 Du Pont system of analysis [LO3]
Jerry Rice and Grain Stores has $4,670,000 in yearly sales. The firm earns 4.5 percent on each dollar of sales and turns over its assets 3.5 times per year. It has $193,000 in current liabilities and $374,000 in long-term liabilities.
(a)
What is its return on stockholders’ equity? (Do not round intermediate calculations. Round your answer to 2 decimal places. Omit the “%” sign in your response.)
Return on stockholders’ equity
(b)
If the asset base remains the same as computed in part a, but total asset turnover goes up to 4.00, 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. Round your answer to 2 decimal places. Omit the “%” sign in your response.)
New return on stock holders’ equity
21.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
$
30,700
$
139,000
Sales
314,000
2,120,000
Total assets
468,000
925,000
Total debt
194,000
478,000
Stockholders’ equity
274,000
447,000
(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.)
Cable Corporation
Multi-Media, Inc.
Net income / Sales
Net income / Total assets
Sales / Total assets
Debt / Total assets
22.Problem 3-22 Overall ratio analysis [LO2]
The balance sheet for the Bryan Corporation is shown below. Sales for the year were $3,680,000, with 75 percent of sales sold on credit.
BRYAN CORPORATION
Balance Sheet 201X
Assets
Liabilities and Stockholders’ Equity
Cash
$
21,000
Accounts payable
$
222,000
Accounts receivable
324,000
Accrued taxes
93,000
Inventory
244,000
Bonds payable (long-term)
194,000
Plant and equipment
461,000
Common stock
100,000
Paid-in capital
150,000
Retained earnings
291,000
Total assets
$
1,050,000
Total liabilities and
stockholders’ equity
$
1,050,000
Compute the following ratios (Enter only numeric values rounded to 2 decimal places. Omit the “%” sign in your response):
(a)
Current ratio
(b)
Quick ratio
(c)
Debt-to-total-assets ratio
%
(d)
Asset turnover
(e)
Average collection period
days
23.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
$
281,000
Less: Cost of goods sold
169,000
Gross profit
112,000
Less: Selling and administrative expense
44,800
Less: Lease expense
17,500
Operating profit*
$
49,700
Less: Interest expense
8,100
Earnings before taxes
$
41,600
Less: Taxes (30%)
16,640
Earnings after taxes
$
24,960
*Equals income before interest and taxes.
(a)
Compute the interest coverage ratio. (Enter only numeric value rounded to 2 decimal places.)
Interest coverage
(b)
Compute the fixed charge coverage ratio. (Enter only numeric value rounded to 2 decimal places.)
Fixed charge coverage
(c)
The total assets for this company equal $211,000. Compute the return on assets (investment). (Round your answer to 2 decimal places. Omit the “%” sign in your response.)
Return on assets
24.Problem 3-25 Debt utilization [LO2]
A firm has net income before interest and taxes of $135,000 and interest expense of $27,500.
(a)
What is the times-interest-earned ratio? (Enter only numeric value rounded to 2 decimal places.)
Times-interest earned
(b)
If the firm’s lease payments are $43,700, what is the fixed charge coverage? (Enter only numeric value rounded to 2 decimal places.)
Fixed charge coverage
25.Problem 3-28 Trend analysis [LO4]
Quantum Moving Company has the following data. Industry information also is shown.
Company data
Industry data on
Year
Net income
Total assets
Net income/Total assets
2008
$
447,000
$
2,899,000
13.5
%
2009
429,000
$
3,262,000
9.2
2010
442,000
$
3,826,000
7.0
Year
Debt
Total assets
Industry data on
debt/Total assets
2008
$
1,639,000
$
2,899,000
54.2
%
2009
1,748,000
$
3,262,000
44.8
2010
1,943,000
$
3,826,000
33.0
(a)
Calculate the company’s data in terms of (Round your answers to 1 decimal place. Omit the “%” sign in your response):
2008
2009
2010
Net income / Total assets
%
%
%
Debt / Total assets
%
%
%
(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
Debt / Total assets
26.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
$
141,600
(11,800 units at $12.00)
Cost of goods sold
82,600
(11,800 units at $7.00)
Gross profit
59,000
Selling and administrative expense
8,496
Depreciation
12,300
Operating profit
38,204
Taxes (30%)
11,461
After tax income
$
26,743
(a)
Assume in 2011 the same 11,800-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 $7.00 per unit. Also assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute after tax income for 2011. (Round your answer to the nearest whole number. Omit the “$” 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 11,800 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 $7.50 per unit. Further, assume selling and administrative expense will be 6 percent of sales and depreciation will be unchanged. The tax rate is 30 percent. Compute the after tax income. (Round your sales price to 2 decimal places and final answer to the nearest dollar amount. Omit the “$” sign in your response.)
After tax income
$
27.Problem 3-33 Using ratios to construct financial statements [LO2]
The Shannon Corporation has credit sales of $957,600.
Total assets turnover
2.85
times
Cash to total assets
1.20
percent
Accounts receivable turnover
20
times
Inventory turnover
14
times
Current ratio
1.70
times
Debt to total assets
35
percent
Using the above ratios, fill in the balance sheet. (Round your intermediate calculations and final answers to the nearest dollar amount. Omit the “$” sign in your response.)
28.Problem 3-36 Comparing all the ratios [LO2]
SNIDER CORPORATION
Balance Sheet
December 31, 2010
Assets
Current assets:
Cash
$
52,500
Marketable securities
22,500
Accounts receivable (net)
178,000
Inventory
290,000
Total current assets
$
543,000
Investments
66,200
Plant and equipment.
611,000
Less: Accumulated depreciation
(272,000)
Net plant and equipment
339,000
Total assets
$
948,200
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
$
95,100
Notes payable
78,700
Accrued taxes
12,000
Total current liabilities
185,800
Long-term liabilities:
Bonds payable
159,400
Total liabilities
$
345,200
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
233,000
Total stockholders’ equity
603,000
Total liabilities and stockholders’ equity
$
948,200
SNIDER CORPORATION
Income Statement
For the Year Ending December 31, 2010
Sales (on credit)
$
2,067,000
Less: Cost of goods sold
1,323,000
Gross profit
744,000
Less: Selling and administrative expenses
516,000
*
Operating profit (EBIT)
228,000
Less: Interest expense
30,100
Earnings before taxes (EBT)
197,900
Less: Taxes
83,000
Earnings after taxes (EAT)
$
114,900
*Includes $39,600 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.)
(a)
Profitability ratios
Profitability ratios
Profit margin
%
Return on assets (investment)
%
Return on equity
%
(b)
Assets utilization ratios
Assets utilization ratios
Receivable turnover
Average collection period
days
Inventory turnover
Fixed asset turnover
Total asset turnover
(c)
Liquidity ratios
Liquidity ratios
Current ratio
Quick ratio
(d)
Debt utilization ratios
Debt utilization ratios
Debt to total assets
%
Times interest earned
Fixed charge coverage
29.Problem 3-37 Ratio computation and analysis [LO2]
Given the financial statements for Jones Corporation and Smith Corporation:
JONES CORPORATION
Current Assets
Liabilities
Cash
$
29,700
Accounts payable
$
166,000
Accounts receivable
88,500
Bonds payable (long term)
82,100
Inventory
51,300
Long-Term Assets
Stockholders’ Equity
Fixed assets
$
542,000
Common stock
$
150,000
Less: Accumulated depreciation
(154,700)
Paid-in capital
70,000
Net fixed assets*
387,300
Retained earnings
88,700
Total assets
$
556,800
Total liabilities and equity
$
556,800
Sales (on credit)
$
1,914,000
Cost of goods sold
771,000
Gross profit
1,143,000
Selling and administrative expense†
325,000
Less: Depreciation expense
59,600
Operating profit
758,400
Interest expense
9,200
Earnings before taxes
749,200
Tax expense
102,300
Net income
$
646,900
*Use net fixed assets in computing fixed asset turnover.
†Includes $7,900 in lease payments.
SMITH CORPORATION
Current Assets
Liabilities
Cash
$
39,800
Accounts payable
$
76,500
Marketable securities
12,200
Bonds payable (long term)
225,000
Accounts receivable
74,600
Inventory
77,700
Long-Term Assets
Stockholders’ Equity
Fixed assets
$
509,000
Common stock
$
75,000
Less: Accumulated depreciation
(252,600)
Paid-in capital
30,000
Net fixed assets*
256,400
Retained earnings
54,200
Total assets
$
460,700
Total liabilities and equity
$
460,700
*Use net fixed assets in computing fixed asset turnover.
SMITH CORPORATION
Sales (on credit)
$
1,150,000
Cost of goods sold
687,000
Gross profit
463,000
Selling and administrative expense†
281,000
Less: Depreciation expense
59,200
Operating profit
122,800
Interest expense
27,100
Earnings before taxes
95,700
Tax expense
54,200
Net income
$
41,500
†Includes $7,900 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?
