🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000CA670,000

ADMS 2500 Lecture Notes - Lecture 7: Milk Quota, General Ledger, Rational Basis Review

63 views15 pages
School
York University
Department
Administrative Studies
Course
ADMS 2500
Professor
Romi Lee Sevel

For unlimited access to Class Notes, a Class+ subscription is required.

ishvindersinghsandhu and 38251 others unlocked
ADMS 2500 Full Course Notes
12
ADMS 2500 Full Course Notes
Verified Note
12 documents

Document Summary

Midterm two has a lot more to it. Some what theoretical and some what calculating. Are accounts receivable over stated? then go back to allowances. Just the same as you wouldn"t want liability to be understated. Capital assets also known as xed assets. Short term assets : going to be on balance sheet and hopefully be cash. Short term assets, typically not going to be on the balance sheet for more than one year. Capital assets are long term assets that stay on the balance sheet for longer than one year. Invested a lot of money in the asset. Acquired with the intention of being used. Vs inventory which was acquired with the intention of being sold. Property, plant and equipment (can see them, can count them, physical items) Intangible assets (they"re not physical items, some sort of piece of paper representing these intangible assets) Purchased with the intent to sell : inventory.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

ADMS 2500
Final Exam
Study Guide
ADMS 2500 Study Guide - Cash Flow Statement, Accounts Payable, Trial Balance
puceraven945
ADMS 2500 Chapter Notes - Chapter 9: Intangible Asset, Capital Asset, Patent Infringement
cerisecockroach845
FI 413
Final Exam
Study Guide
FI 413 Study Guide - Final Guide: Current Liability, Accounts Payable, Retained Earnings
harlequinsalmon729

Related Questions

8. Your company issued bonds at a premium. Which of the following statements is NOT true?
A. The contra account, premium on bonds payable, is amortized each year by shifting part of its balance to interest expense.
B. On the date of issuance, the stated interest rate was greater than the market interest rate.
C. As the current date approaches the maturity date, the carrying value of the bond approaches the face value of the bond.
D. The account used to record the premium has a normal debit balance.

9. Which of the following would help a company improve its quick ratio without necessarily lowering the liability risk to a creditor?
A. Borrowing money on a long-term note just before the end of the accounting period.
B. Shifting resources from long-term assets to short-term assets such as supplies and inventory.
C. Shifting obligations from long-term liabilities to short-term liabilities.
D. Acquiring inventory by issuing a long-term note.

10. Which of the following is not used to calculate the times interest earned ratio?
A. Net income.
B. Income tax expense.
C. Interest earned on investments.
D. Interest expense.

11. Which of the following statements regarding treasury stock is true?
A. When a company reissues treasury stock for more than it originally paid for the stock, it does not report a gain.
B. When a company purchases treasury stock or pays a dividend, it increases total stockholders' equity.
C. Treasury stock is reported as an asset on the balance sheet.
D. Treasury stock is reported as issued and outstanding stock.

16. Typically, all other things equal, a profitable company that pays little or no dividends:
A. is a bad investment.
B. will reinvest profits which can lead to greater growth potential.
C. will experience relatively stable stock prices over time.
D. will appeal to investors who desire distributions of profit.

17. If a corporation declares and distributes a 10% stock dividend on its common shares, the account debited is:
A. Dividends Payable.
B. Common Stock.
C. Share Capital.
D. Retained Earnings.

20. Limited Liability Companies (LLCs) are like general partnerships in that:
A. income tax is not paid by the company itself.
B. the business has a separate legal identity.
C. liability is limited.
D. amounts paid to the owners are recorded as salaries expense.

21. Which of the following statements regarding financing activities is NOT true?
A. Cash dividends paid to a company's stockholders are reported as cash outflows from financing activities.
B. When a company issues stock for cash, it reports a cash inflow from financing activities.
C. When a company repurchases stock with cash, it reports a cash outflow for financing activities.
D. When a company repays a loan, it reports a cash outflow from investing activities.

22. Which of the following statements regarding quality of income ratio is NOT true?
A. A quality of income ratio will increase if a company's working capital management allows current assets such as inventory to increase out of control.
B. Variations in the ratio can be seasonal and are the result of sales fluctuations rather than reasons for alarm.
C. The quality of income ratio measures the portion of income that was generated in cash.
D. The quality of income ratio is useful when compared to industry competitors or to prior periods.

23. Which of the following types of information is not provided by the statement of cash flows?
A. Company management of current assets and liabilities.
B. Expenditures on long-term assets.
C. Current profitability as measured by specific revenues and expenses.
D. Reliance on external financing.

24. Cash and cash equivalents include:
A. assets that have stable long-term value.
B. assets that are short-term, highly liquid, and are purchased within three months of maturity.
C. assets that consistently grow in value over the long run.
D. assets that are expected to be used up within a year.

Felicia & Fred recently hired a new designer who has considerable experience in product development of handbags and small leather goods. The intent was for the designer to initially work with the company’s innovation team to introduce a gift with purchase (GWP): a logo wristlet purse that can accommodate a Smartphone. This GWP will be offered as a limited edition during the holiday season and customers or recipients will be encouraged through social media to participate in a survey regarding the product to determine future potential demand for handbags and other small leather goods bearing the Felicia & Fred logo.

The potential inclusion of handbags as part of the company’s product will require significant addition to the total value of Felicia & Fred’s working capital. The entire mix of assets and liabilities as part of the balance sheet might change.

Consider the following:

Question 1

Name three working capital elements that may change as a result of expansion into a new product line. Select one of these working capital elements and indicate why this element will change under the proposed program. Also within this selected element what are some of the issues Felicia and Fred can do to optimally manage? What are the risks of poor management of the element you selected?

Question 2

In order to maintain the company’s debt covenants, it must maintain a current ratio of 1.5. Its current ratio is presently 1.75 and has been maintained at that level for some time. What happens to a company’s current ratio if it takes on additional short-term debt or accounts payable to fund current assets when the current ratio is greater than one? Or Less than one?

Given your consideration of the part 2 result, should the company fund a working capital increase with short-term debt or long-term debt?

Data for Barry Computer Co. and its industry averages follow.

Barry Computer Company:
Balance Sheet as of December 31, 2014 (In Thousands)
Cash $139,080 Accounts payable $139,080
Receivables 382,470 Other current liabilities 115,900
Inventories 231,800 Notes payable 127,490
Total current assets $753,350 Total current liabilities $382,470
Long-term debt $266,570
Net fixed assets 405,650 Common equity 509,960
Total assets $1,159,000 Total liabilities and equity $1,159,000
Barry Computer Company:
Income Statement for Year Ended December 31, 2014 (In Thousands)
Sales $1,900,000
Cost of goods sold
Materials $779,000
Labor 418,000
Heat, light, and power 95,000
Indirect labor 190,000
Depreciation 57,000 $1,539,000
Gross profit $361,000
Selling expenses 228,000
General and administrative expenses 19,000
Earnings before interest and taxes (EBIT) $114,000
Interest expense 26,657
Earnings before taxes (EBT) 87,343
Federal and state income taxes (40%) 34,937
Net income $52,406

1. Calculate the indicated ratios for Barry. Round your answers to two decimal places.

Ratio Barry Industry Average
Current x 1.99x
Quick x 1.35x
Days sales outstandinga days 34.99days
Inventory turnover x 8.44x
Total assets turnover x 1.91x
Profit margin % 2.63%
ROA % 5.02%
ROE % 10.93%
ROIC % 7.90%
TIE x 3.20x
Debt/Total capital % 47.00%


aCalculation is based on a 365-day year.

2. Construct the Du Pont equation for both Barry and the industry. Round your answers to two decimal places.

FIRM INDUSTRY
Profit margin % 2.63%
Total assets turnover x 1.91x
Equity multiplier

3. Outline Barry's strengths and weaknesses as revealed by your analysis. Select One below

a. The firm's days sales outstanding is less than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is lower than the industry average, its other profitability ratios are high compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

b. The firm's days sales outstanding is more than the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well above the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in an above average liquidity position and financial leverage is similar to others in the industry.

c. The firm's days sales outstanding is comparable to the industry average, indicating that the firm should neither tighten credit nor enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in a below average liquidity position and financial leverage is similar to others in the industry.

d. The firm's days sales outstanding ratio is more than twice as long as the industry average, indicating that the firm should tighten credit or enforce a more stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets decreased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

e. The firm's days sales outstanding is more than twice as long as the industry average, indicating that the firm should loosen credit or apply a less stringent collection policy. The total assets turnover ratio is well below the industry average so sales should be increased, assets increased, or both. While the company's profit margin is higher than the industry average, its other profitability ratios are low compared to the industry - net income should be higher given the amount of equity and assets. However, the company seems to be in an average liquidity position and financial leverage is similar to others in the industry.

4. Suppose Barry had doubled its sales as well as its inventories, accounts receivable, and common equity during 2014. How would that information affect the validity of your ratio analysis? (Hint: Think about averages and the effects of rapid growth on ratios if averages are not used. No calculations are needed.)

Select one below

a. If 2014 represents a period of normal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2014 ratios will be misled, and a return to supernormal conditions in 2013 could hurt the firm's stock price.

b. If 2014 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have substantial meaning. Potential investors who look only at 2014 ratios will be well informed, and a return to normal conditions in 2013 could hurt the firm's stock price.

c. If 2014 represents a period of supernormal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2014 ratios will be misled, and a return to normal conditions in 2013 could hurt the firm's stock price.

d. If 2014 represents a period of supernormal growth for the firm, ratios based on this year will be accurate and a comparison between them and industry averages will have substantial meaning. Potential investors need only look at 2014 ratios to be well informed, and a return to normal conditions in 2013 could help the firm's stock price.

e. If 2014 represents a period of normal growth for the firm, ratios based on this year will be distorted and a comparison between them and industry averages will have little meaning. Potential investors who look only at 2014 ratios will be misled, and a continuation of normal conditions in 2013 could hurt the firm's stock price.