ACCT207 Lecture Notes - Lecture 2: Internal Revenue Service, May Report, Historical Cost
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| Balance Sheet | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash | 807,000 | 628,000 | 612,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Receivables | 2,582,000 | 2,896,000 | 4,605,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | 2,870,000 | 5,181,000 | 7,319,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Assets | 6,259,000 | 8,705,000 | 12,536,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Fixed Assets | 2,216,000 | 2,423,000 | 5,538,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Assets | 8,475,000 | 11,128,000 | 15,074,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accounts Payable | 961,000 | 1,648,000 | 3,137,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable | 400,000 | 800,000 | 2,860,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accruals | 440,000 | 800,000 | 1,150,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Current Liabilities | 1,801,000 | 3,248,000 | 7,147,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Long Term Debt | 1,350,000 | 1,908,000 | 1,867,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | 3,650,000 | 3,650,000 | 3,650,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Retained Earnings | 1,674,000 | 2,322,000 | 2,410,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Equity | 5,324,000 | 5,972,000 | 6,060,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Liabilities and Equity | 8,475,000 | 11,128,000 | 15,074,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income Statement | 2015 | 2016 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales | 26,820,000 | 28,966,000 | 30,703,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of Sales | 21,216,000 | 23,550,000 | 26,140,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Profit | 5,604,000 | 5,416,000 | 4,563,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Expenses | 2,574,000 | 3,225,000 | 3,866,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Operating Profit | 3,030,000 | 2,191,000 | 697,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | 91,000 | 275,000 | 469,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Before Taxes | 2,939,000 | 1,916,000 | 228,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Taxes (48%) | 1,411,000 | 919,000 | 110,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | 1,528,000 | 997,000 | 118,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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ABC Company, a toy manufacturer, believes the coming holiday season (between Thanksgiving in late November and Christmas on the 25thof December) will be a very good one, expecting an increase of 20% in its sales. Outside economic analysts believe the effects of the recent recession are over. Consumer confidence is high. To meet that 20% increase, however, inventories must be built up so, to finance that expansion, ABC wants to borrow $1,000,000 from its bank.
You are the loan officer who must make the decision as to whether or not to give ABC the money. You are going to prepare ratios for 3 years, the Cash Conversion Cycle for the same period and operating cash flow for the years for which you have figures.
Review the Balance Sheets and Income Statements for ABC over the 3 years and answer the following questions (20 points each).
3) Operating Cash Flow is the first of the 3 parts to the Statement of Cash Flows.
a) Define operating cash flow. What does it tell us?
b) Calculate ABCâs operating cash flows for those years for which figures are available.
c) Does your analysis of ABCâs operating cash flows change your conclusions listed in 1) and 2) above?
4) Do you believe ABCâs cash position and its management of cash needs improvement? If so, how would you recommend they do it?
Answer Questions in Bold!
I need Answers to Question from P - V!
I know it's a lot but they are all small questions related to the same case so I didn't know how to split it into multiple questions. I would really appreciate the help, as I need a way to compare my answers.
Dallas & Associates Financial Statement Preparation & Analysis
You have been hired as a senior financial analyst for Dallas and Associates and you are in charge of preparing the financial statements and presenting an annual analysis at the board meeting.
Overview of Dallas & Associateâs Balance Sheet
The assets of Dallas & Associates in 2017 have both current assets and net plant and equipment. It has total assets of $ 7.5 million and net plan and equipment equals $5 million. Dallas & Associateâs only finances with $2.5 million long-term debt, $500,000 notes payable and total common equity of $3.5 million. The firm does have $400,000 accounts payable and $600,000 accruals on its balance sheet. Now assume the firmâs current assets consist entirely of cash and cash equivalence, account receivables and inventories. If it has 1.5 million cash and cash equivalents and $400,000 account receivables.
Dallas & Associates Income Statement in 2017 (dollars are in millions)
| Sales | 15 |
| Operating costs excluding depreciation and amortization | 5 |
| EBITDA | 10 |
| Depreciation & Amortization | 0.6 |
| EBIT | 9.4 |
| Interest | 0.4 |
| EBT | 9 |
| Taxes (40%) | 3.6 |
| Net Income Cash Dividends | 5.4 2.0 |
Use the above information to answer the following questions. Make sure to include the calculation steps/ formula.
Questions:
a. Prepare the balance sheet.
| Total Assets | Liabilities & Shareholderâs Equity |
b. What is the amount of total liabilities and equity that appears on the firmâs balance?
c. What is the amount of current assets?
d. What is the balance of current liabilities?
e. What is the amount of companyâs inventory?
f. What is the amount of total liabilities?
g. What is the amount of total debt?
h. What is the amount of total capital?
i. What is the amount of net working capital?
j. What is the amount of net operating working capital?
k. If by the end of 2017, the retained earnings of John and Jon is $2.5 million, what is the amount of paid-in capital?
l. If John & Jon decides to purchase $500,000 market securities by using its cash, how does this action would affect its current asset position?
m. As the Income of Statement shows in 2017 Dallas associates actually gave out $2 million cash dividends, what is the amount of retained earnings?
n. What is the amount of operating income?
o. What are the operating margin and the profit margin?
p. What is the average length of time that Dallas associates must wait after making a sale before it receives cash?
q. What is the ratio we generally use to estimate a firmâs ability to meet its annual interest payments? And calculate that ratio for Dallas associates.
r. What are the fixed assets turnover ratio and the total asset turnover ratio?
s. What is the ratio of total debt to total capital?
t. What is the ratio of return on common equity?
u. Assume between 2016 and 2017, net operating working capital has increased by $500,000, calculate Dallas & Associates free cash flow. (Hint: use this formula. FCF = [EBIT (1-T) +Depreciation & Amortization] â [Capital Expenditures + Change on Net Operating Working Capital])
v. Now after you present your analysis on the meeting, the CEO would like to see higher sales and a forecasted net income of $10.8 million. Assume that operating costs (excluding depreciation and amortization) are still one third of sales and that depreciation and amortization and interest expenses will increase by 10%. The tax rate which is 40%, will remain the same. What level of sales would generate $10.8 million in net income?
THANK YOU!
I know it's a lot but they are all small questions related to the same case so I didn't know how to split it into multiple questions. I would really appreciate the help, as I need a way to compare my answers.
Dallas & Associates Financial Statement Preparation & Analysis
You have been hired as a senior financial analyst for Dallas and Associates and you are in charge of preparing the financial statements and presenting an annual analysis at the board meeting.
Overview of Dallas & Associateâs Balance Sheet
The assets of Dallas & Associates in 2017 have both current assets and net plant and equipment. It has total assets of $ 7.5 million and net plan and equipment equals $5 million. Dallas & Associateâs only finances with $2.5 million long-term debt, $500,000 notes payable and total common equity of $3.5 million. The firm does have $400,000 accounts payable and $600,000 accruals on its balance sheet. Now assume the firmâs current assets consist entirely of cash and cash equivalence, account receivables and inventories. If it has 1.5 million cash and cash equivalents and $400,000 account receivables.
Dallas & Associates Income Statement in 2017 (dollars are in millions)
| Sales | 15 |
| Operating costs excluding depreciation and amortization | 5 |
| EBITDA | 10 |
| Depreciation & Amortization | 0.6 |
| EBIT | 9.4 |
| Interest | 0.4 |
| EBT | 9 |
| Taxes (40%) | 3.6 |
| Net Income Cash Dividends | 5.4 2.0 |
Use the above information to answer the following questions. Make sure to include the calculation steps/ formula.
Questions:
a. Prepare the balance sheet.
| Total Assets | Liabilities & Shareholderâs Equity |
b. What is the amount of total liabilities and equity that appears on the firmâs balance?
c. What is the amount of current assets?
d. What is the balance of current liabilities?
e. What is the amount of companyâs inventory?
f. What is the amount of total liabilities?
g. What is the amount of total debt?
h. What is the amount of total capital?
i. What is the amount of net working capital?
j. What is the amount of net operating working capital?
k. If by the end of 2017, the retained earnings of John and Jon is $2.5 million, what is the amount of paid-in capital?
l. If John & Jon decides to purchase $500,000 market securities by using its cash, how does this action would affect its current asset position?
m. As the Income of Statement shows in 2017 John & Jon actually gave out $2 million cash dividends, what is the amount of retained earnings?
n. What is the amount of operating income?
o. What are the operating margin and the profit margin?
p. What is the average length of time that John & Jon must wait after making a sale before it receives cash?
q. What is the ratio we generally use to estimate a firmâs ability to meet its annual interest payments? And calculate that ratio for John and Jon.
r. What are the fixed assets turnover ratio and the total asset turnover ratio?
s. What is the ratio of total debt to total capital?
t. What is the ratio of return on common equity?
u. Assume between 2016 and 2017, net operating working capital has increased by $500,000, calculate John & Jonâs free cash flow. (Hint: use this formula. FCF = [EBIT (1-T) +Depreciation & Amortization] â [Capital Expenditures + Change on Net Operating Working Capital])
v. Now after you present your analysis on the meeting, the CEO would like to see higher sales and a forecasted net income of $10.8 million. Assume that operating costs (excluding depreciation and amortization) are still one third of sales and that depreciation and amortization and interest expenses will increase by 10%. The tax rate which is 40%, will remain the same. What level of sales would generate $10.8 million in net income?
THANK YOU!