AFA 100 Lecture Notes - Lecture 2: Cash Flow, Gross Profit, Interest Expense
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Financial Information for Case9-1 | |||
Industy Wide | |||
Balance Sheets | |||
Years Ended December 31, 2014and 2015 | |||
2015 | 2014 | ||
Assets | |||
Current Assets: | |||
Cash | $ 30,000 | $ 25,000 | |
Accounts receivable | 110,000 | 90,000 | |
Inventories | 100,000 | 80,000 | |
Total Current Assets | 240,000 | 195,000 | |
Fixed Assets; | |||
Plant and equipment | 250,000 | 220,000 | |
Less accumulated depreciation | (100,000) | (65,000) | |
Land | 50,000 | 50,000 | |
Total Fixed Assets | 200,000 | 205,000 | |
Total Assets | $ 440,000 | $ 400,000 | |
Liabilities and Equity | |||
Current Liabilities: | |||
Accounts payable | $ 58,000 | $ 50,000 | |
Notes payable-due within one year | 50,000 | 50,000 | |
Accrued liabilities | - | - | |
Total Current Liabilities | 108,000 | 100,000 | |
Long Term Liabilities | 32,000 | 20,000 | |
Total Liabilities | 140,000 | 120,000 | |
Stockholders' Equity: | |||
Common stock | 100,000 | 100,000 | |
Retained earnings | 200,000 | 180,000 | |
Total Stockholders' Equity | 300,000 | 280,000 | |
Total Liabilities and Equty | $ 440,000 | $ 400,000 | |
Industry Wide | |||
Income Statement | |||
Years Ended December 31, 2014and 2015 | |||
Revenues | $ 1,100,000 | $ 1,000,000 | |
Cost of goods sold | (700,000) | (650,000) | |
Gross margin | 400,000 | 350,000 | |
Operating expenses | (275,000) | (255,000) | |
Operating income | 125,000 | 95,000 | |
Interest expense | (15,000) | (15,000) | |
Income before taxes | 110,000 | 80,000 | |
Income taxes | (44,000) | (32,000) | |
Net income | $ 66,000 | $ 48,000 | |
Financial Information for Case9-1 | |||
Industy Wide | |||
Balance Sheets | |||
Years Ended December 31, 2014and 2015 | |||
2015 | 2014 | ||
Assets | |||
Current Assets: | |||
Cash | $ 30,000 | $ 25,000 | |
Accounts receivable | 110,000 | 90,000 | |
Inventories | 100,000 | 80,000 | |
Total Current Assets | 240,000 | 195,000 | |
Fixed Assets; | |||
Plant and equipment | 250,000 | 220,000 | |
Less accumulated depreciation | (100,000) | (65,000) | |
Land | 50,000 | 50,000 | |
Total Fixed Assets | 200,000 | 205,000 | |
Total Assets | $ 440,000 | $ 400,000 | |
Liabilities and Equity | |||
Current Liabilities: | |||
Accounts payable | $ 58,000 | $ 50,000 | |
Notes payable-due within one year | 50,000 | 50,000 | |
Accrued liabilities | - | - | |
Total Current Liabilities | 108,000 | 100,000 | |
Long Term Liabilities | 32,000 | 20,000 | |
Total Liabilities | 140,000 | 120,000 | |
Stockholders' Equity: | |||
Common stock | 100,000 | 100,000 | |
Retained earnings | 200,000 | 180,000 | |
Total Stockholders' Equity | 300,000 | 280,000 | |
Total Liabilities and Equty | $ 440,000 | $ 400,000 | |
Industry Wide | |||
Income Statement | |||
Years Ended December 31, 2014and 2015 | |||
Revenues | $ 1,100,000 | $ 1,000,000 | |
Cost of goods sold | (700,000) | (650,000) | |
Gross margin | 400,000 | 350,000 | |
Operating expenses | (275,000) | (255,000) | |
Operating income | 125,000 | 95,000 | |
Interest expense | (15,000) | (15,000) | |
Income before taxes | 110,000 | 80,000 | |
Income taxes | (44,000) | (32,000) | |
Net income | $ 66,000 | $ 48,000 |
1. Calculate the current ratio and average collection period foraccounts receivable, inventory turnover, gross margin percentage,and return on equity for 2014 and 2015 for the JordanCorporation.
2. Calculate the current ratio and average collection period foraccounts receivable, inventory turnover, gross margin percentage,and return on equity for the Industry.
3. Compare the performance of the Jordan Corporation between2014 and 2015 and comment on the trend of each ratio.
4. Compare the performance of the Jordan Corporation in 2015 tothe industry averages and comment on each.
The comparative financial statements of Bettancort Inc. are as follows. The market price of Bettancort Inc. common stock was $71.25 on December 31, 2016.
Bettancort Inc. | ||||||
Comparative Retained Earnings Statement | ||||||
For the Years Ended December 31, 2016 and 2015 | ||||||
2016 | 2015 | |||||
Retained earnings, January 1 | $2,655,000 | $2,400,000 | ||||
Add net income for year | 300,000 | 280,000 | ||||
Total | $2,955,000 | $2,680,000 | ||||
Deduct dividends: | ||||||
On preferred stock | $15,000 | $15,000 | ||||
On common stock | 10,000 | 10,000 | ||||
Total | $25,000 | $25,000 | ||||
Retained earnings, December 31 | $2,930,000 | $2,655,000 | ||||
Bettancort Inc. | ||||
Comparative Income Statement | ||||
For the Years Ended December 31, 2016 and 2015 | ||||
2016 | 2015 | |||
Sales (all on account) | $1,212,000 | $1,010,000 | ||
Sales returns and allowances | 12,000 | 10,000 | ||
Sales | $1,200,000 | $1,000,000 | ||
Cost of goods sold | 500,000 | 475,000 | ||
Gross profit | $700,000 | $525,000 | ||
Selling expenses | $240,000 | $200,000 | ||
Administrative expenses | 180,000 | 150,000 | ||
Total operating expenses | $420,000 | $350,000 | ||
Income from operations | $280,000 | $175,000 | ||
Other income | 166,000 | 225,000 | ||
$446,000 | $400,000 | |||
Other expense (interest) | 66,000 | 60,000 | ||
Income before income tax | $380,000 | $340,000 | ||
Income tax expense | 80,000 | 60,000 | ||
Net income | $300,000 | $280,000 |
Bettancort Inc. | |||||||
Comparative Balance Sheet | |||||||
December 31, 2016 and 2015 | |||||||
Dec. 31, 2016 | Dec. 31, 2015 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash | $450,000 | $400,000 | |||||
Marketable securities | 300,000 | 260,000 | |||||
Accounts receivable (net) | 130,000 | 110,000 | |||||
Inventories | 67,000 | 58,000 | |||||
Prepaid expenses | 153,000 | 139,000 | |||||
Total current assets | $1,100,000 | $967,000 | |||||
Long-term investments | 2,350,000 | 2,200,000 | |||||
Property, plant, and equipment (net) | 1,320,000 | 1,188,000 | |||||
Total assets | $4,770,000 | $4,355,000 | |||||
Liabilities | |||||||
Current liabilities | $440,000 | $400,000 | |||||
Long-term liabilities: | |||||||
Mortgage note payable, 8%, due 2021 | $100,000 | $0 | |||||
Bonds payable, 5%, due 2017 | 1,000,000 | 1,000,000 | |||||
Total long-term liabilities | $1,100,000 | $1,000,000 | |||||
Total liabilities | $1,540,000 | $1,400,000 | |||||
Stockholders' Equity | |||||||
Preferred $0.75 stock, $10 par | $200,000 | $200,000 | |||||
Common stock, $10 par | 100,000 | 100,000 | |||||
Retained earnings | 2,930,000 | 2,655,000 | |||||
Total stockholders' equity | $3,230,000 | $2,955,000 | |||||
Total liabilities and stockholders' equity | $4,770,000 | $4,355,000 |
Required:
Determine the following measures for 2016, rounding to one decimal place, except for dollar amounts, which should be rounded to the nearest cent. Use the rounded answer of the requirement for subsequent requirement, if required. Assume 365 days a year.
1. Working capital | $ | |
2. Current ratio | ||
3. Quick ratio | ||
4. Accounts receivable turnover | ||
5. Number of days' sales in receivables | days | |
6. Inventory turnover | ||
7. Number of days' sales in inventory | days | |
8. Ratio of fixed assets to long-term liabilities | ||
9. Ratio of liabilities to stockholders' equity | ||
10. Number of times interest charges are earned | ||
11. Number of times preferred dividends are earned | ||
12. Ratio of sales to assets | ||
13. Rate earned on total assets | % | |
14. Rate earned on stockholders' equity | % | |
15. Rate earned on common stockholders' equity | % | |
16. Earnings per share on common stock | $ | |
17. Price-earnings ratio | ||
18. Dividends per share of common stock | $ | |
19. Dividend yield | % |
The income statement for CashCat Company for the year ending December 31, 2016 is shown in Exhibit 1 and balance sheets as of December 31, 2015 and 2016 are shown in Exhibit 2. The companyâs accountant provided the additional information for transactions during 2016:
(1) Purchased property, plant and equipment (PP&E) at a cost of $400,000.
(2) Issued $98,000 of new bonds payable.
(3) Issued common stock for $25,000.
Required: Prepare a statement of cash flows, in good form, for 2016 using the indirect method.
EXHIBIT 1 | |||||
CASHCAT COMPANY | |||||
Income Statements | |||||
For the Year Ending December 31, 2016 | |||||
Total revenue | $1,000,000 | ||||
Costs and expenses: | |||||
Cost of sales | $425,000 | ||||
General and administrative expense | 300,000 | ||||
Depreciation-PP&E | 60,000 | ||||
Total costs and expenses | 785,000 | ||||
Operating income | 215,000 | ||||
Other items: | |||||
Gain on retirement of bonds | 25,000 | ||||
Loss on sale of PP&E | (10,000) | ||||
Interest expense | (80,000) | ||||
Income before income taxes | 150,000 | ||||
Income taxes | 50,000 | ||||
Net income | $100,000 | ||||
EXHIBIT 2 | |||||||
CASHCAT COMPANY | |||||||
Balance Sheets | |||||||
For the Years Ending December 31, 2015 and 2016 | |||||||
Current Assets: | 2015 | 2016 | |||||
Cash and cash equivalents | $20,000 | $16,000 | |||||
Accounts receivable | 80,000 | 90,000 | |||||
Inventory | 40,000 | 30,000 | |||||
Total current assets | $140,000 | $136,000 | |||||
Property, Plant and Equipment: | |||||||
Property, plant and equipment at cost | $800,000 | $900,000 | |||||
Accumulated depreciation | (325,000) | (350,000) | |||||
Net property and equipment | 475,000 | 550,000 | |||||
Total assets | $615,000 | $686,000 | |||||
Current Liabilities: | |||||||
Accounts payable | $85,000 | $100,000 | |||||
Income taxes payable | 30,000 | 28,000 | |||||
Total current liabilities | $115,000 | $128,000 | |||||
Long-Term Debt | |||||||
Bonds payable | $270,000 | $268,000 | |||||
Stockholders' Equity: | |||||||
Common stock | $10,000 | $15,000 | |||||
Capital in excess of par value | 80,000 | 85,000 | |||||
Retained earnings | 180,000 | 210,000 | |||||
Treasury stock | (40,000) | (20,000) | |||||
Total stockholder's Equity | 230,000 | 290,000 | |||||
Total liabilities and stockholders' equity | $615,000 | $686,000 | |||||
check | 0 | 0 |