AFM101 Lecture Notes - Lecture 21: Retained Earnings, Preferred Stock, Stock Split
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P14-3 Performratio analysis and evaluate financial position and operatingresults | ||||||||||
Condensed balance sheet andincome statement data for Landwehr Corporation appear | ||||||||||
below and on page 644. | ||||||||||
LANDWEHR CORPORATION | ||||||||||
Balance Sheets | ||||||||||
December 31 | ||||||||||
2018 | 2017 | 2016 | ||||||||
Cash | 25,000 | 20,000 | 18,000 | |||||||
Accounts receivable (net) | 50,000 | 45,000 | 48,000 | |||||||
Other current assets | 90,000 | 95,000 | 64,000 | |||||||
Investments | 75,000 | 70,000 | 45,000 | |||||||
Plant and equipment (net) | 400,000 | 370,000 | 358,000 | |||||||
640,000 | 600,000 | 533,000 | ||||||||
Current liabilities | 75,000 | 80,000 | 70,000 | |||||||
Long-term debt | 80,000 | 85,000 | 50,000 | |||||||
Common stock, $10 par | 340,000 | 310,000 | 300,000 | |||||||
Retained earnings | 145,000 | 125,000 | 113,000 | |||||||
640,000 | 600,000 | 533,000 | ||||||||
LANDWEHR CORPORATION | ||||||||||
Income Statement | ||||||||||
For the Years Ended December 31 | ||||||||||
2018 | 2017 | |||||||||
Sales revenue | $740,000 | $700,000 | ||||||||
Less: Sales returns and allowances | 40,000 | 50,000 | ||||||||
Net sales | 700,000 | 650,000 | ||||||||
Cost of goods sold | 420,000 | 400,000 | ||||||||
Gross profit | 280,000 | 250,000 | ||||||||
Operating expenses (including income taxes) | 235,000 | 220,000 | ||||||||
Net income | $45,000 | $30,000 | ||||||||
Additional information: | ||||||||||
1. The market price of Landwehr's common stock was$4.00, $5.00, and $8.00 for | ||||||||||
2016, 2017 and 2018,respectively. | ||||||||||
2. All dividends are paid in cash. | ||||||||||
After you have completedP14-3, consider the additional question. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1. | Assume that that the net income for 2017 and theweighted average common shares outstanding changed to $38,000 and31,500 respectively. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Also assume that 2018 net sales and totalliabilities also changed to $680,000 and $160,000 respectively.Show the impact of these changes on | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
the Profit Margin, Asset Turnover, Earnings Per share,price-earnings ratio, payout ratio, and debt to assets ratio for2017 and 2018
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Nichols Enterprises has an investment in 27,000 shares ofElliott Electronics that Nichols accounts for as a securityavailable for sale. Elliott shares are publicly traded on the NewYork Stock Exchange, and The Wall Street Journal quotes aprice for those shares of $12 a share, but Nichols believes themarket has not appreciated the full value of the Elliott shares andthat a more accurate price is $23 a share. Nichols should carry theElliott investment on its balance sheet at: |
$621,000.
$324,000.
Either $324,000 or $621,000, as either are defensiblevaluations.
$472,500, the midpoint of Nichols's range of reasonably likelyvaluations of Elliott.
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Zwick Company bought 23,500 shares of the voting common stock ofHandy Corporation in January 2016. In December, Handy announced$208,600 net income for 2016 and declared and paid a cash dividendof $8 per share on the 209,000 shares of outstanding common stock.Zwick Company's dividend revenue from Handy Corporation in December2016 would be: |
$ 0.
$23,455.
$188,000.
None of these answer choices iscorrect.
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Sox Corporation purchased a 30% interest in Hack Corporation for$1,825,000 on January 1, 2016. On November 1, 2016, Hack declaredand paid $2.3 million in dividends. On December 31, Hack reported anet loss of $4.4 million for the year. What amount of loss shouldSox report on its income statement for 2016 relative to itsinvestment in Hack? |
$1,320,000.
$1,825,000.
$1,135,000.
$690,000.
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Assume that, on January 1, 2016, Matsui Co. paid $2,688,000 forits investment in 96,000 shares of Yankee Inc. Further, assume thatYankee has 300,000 total shares of stock issued. The book value andfair value of Yankee's identifiable net assets were both $600,000at January 1, 2016. The following information pertains to Yankeeduring 2016: |
Net income | $300,000 |
Dividends declared and paid | $90,000 |
Market price of common stock on 12/31/2016 | $30/share |
What amount would Matsui report in its year-end 2016 balancesheet for its investment in Yankee? |
$3,078,000.
$2,778,000.
$2,755,200.
None of these answer choices iscorrect.
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Gerken Company concluded at the beginning of 2016 that thecompany's ownership interest in DillCo had increased to the pointthat it became appropriate to begin using the equity method toaccount for the investment. The balance in the investment accountis $75,000 at the time of the change, and accountants working withcompany records determined that the balance would have been $82,000if the account had been adjusted for investee net income anddividends as prescribed by the equity method. After implementingthe change to the equity method, if financial statements wereprepared: |
Net income will be unchanged, and retained earnings will behigher by $7,000.
Net income and retained earnings will be higher by $7,000.
Net income and retained earnings will be higher by $82,000.
The accounts will be unchanged, because no adjustment isnecessary.
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