The Anshul Corporation used an inventory method for its taxreturn that was different from the one it used when it prepared theincome statement it distributed to its owners. Some of thedifferences between its tax return and the income statement itdistributed to owners are shown below.
Tax Return
Owners' Income Statement
Sales
$700,000
$700,000
Cost of goods sold
$330,000
$300,000
Operating expenses
$370,000
$400,000
Income taxes expense
$129,500
$140,000
Net income
$240,500
$260,000
Determine how much more or less cash the company has availableby using a different inventory method for tax purposes than it usedwhen it prepared the income statement distributed to itsowners.
a. $19,500 less
b. $19,500 more
c. $10,500 less
d. $10,500 more
The Anshul Corporation used an inventory method for its taxreturn that was different from the one it used when it prepared theincome statement it distributed to its owners. Some of thedifferences between its tax return and the income statement itdistributed to owners are shown below.
Tax Return | Owners' Income Statement | |
Sales | $700,000 | $700,000 |
Cost of goods sold | $330,000 | $300,000 |
Operating expenses | $370,000 | $400,000 |
Income taxes expense | $129,500 | $140,000 |
Net income | $240,500 | $260,000 |
Determine how much more or less cash the company has availableby using a different inventory method for tax purposes than it usedwhen it prepared the income statement distributed to itsowners.
a. | $19,500 less | |
b. | $19,500 more | |
c. | $10,500 less | |
d. | $10,500 more |
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Near the end of 2013, the management of Dimsdale Sports Co., amerchandising company, prepared the following estimated balancesheet for December 31, 2013. |
DIMSDALE SPORTS COMPANY Estimated Balance Sheet December 31, 2013 | |||||
Assets | |||||
Cash | $ | 37,000 | |||
Accountsreceivable | 520,000 | ||||
Inventory | 142,500 | ||||
Total currentassets | 699,500 | ||||
Equipment | $ | 537,000 | |||
Less accumulateddepreciation | 67,125 | ||||
Equipment, net | 469,875 | ||||
Total assets | $ | 1,169,375 | |||
Liabilities and Equity | |||||
Accountspayable | $ | 380,000 | |||
Bank loanpayable | 14,000 | ||||
Taxes payable (due3/15/2014) | 91,000 | ||||
Totalliabilities | $ | 485,000 | |||
Common stock | 473,500 | ||||
Retainedearnings | 210,875 | ||||
Total stockholdersâequity | 684,375 | ||||
Total liabilitiesand equity | $ | 1,169,375 | |||
To prepare a master budget for January, February, and March of2014, management gathers the following information. |
a. | Dimsdale Sportsâ single product is purchased for $30 per unitand resold for $54 per unit. The expected inventory level of 4,750units on December 31, 2013, is more than managementâs desired levelfor 2014, which is 20% of the next monthâs expected sales (inunits). Expected sales are: January, 6,750 units; February, 8,700units; March, 10,500 units; and April, 10,500 units. |
b. | Cash sales and credit sales represent 30% and 70%, respectively,of total sales. Of the credit sales, 61% is collected in the firstmonth after the month of sale and 39% in the second month after themonth of sale. For the December 31, 2013, accounts receivablebalance, $120,000 is collected in January and the remaining$400,000 is collected in February. |
c. | Merchandise purchases are paid for as follows: 20% in the firstmonth after the month of purchase and 80% in the second month afterthe month of purchase. For the December 31, 2013, accounts payablebalance, $85,000 is paid in January and the remaining $295,000 ispaid in February. |
d. | Sales commissions equal to 20% of sales are paid each month.Sales salaries (excluding commissions) are $60,000 per year. |
e. | General and administrative salaries are $144,000 per year.Maintenance expense equals $2,000 per month and is paid incash. |
f. | Equipment reported in the December 31, 2013, balance sheet waspurchased in January 2013. It is being depreciated over eight yearsunder the straight-line method with no salvage value. The followingamounts for new equipment purchases are planned in the comingquarter: January, $36,000; February, $96,000; and March, $28,000.This equipment will be depreciated under the straight-line methodover eight years with no salvage value. A full monthâs depreciationis taken for the month in which equipment is purchased. |
g. | The company plans to acquire land at the end of March at a costof $155,000, which will be paid with cash on the last day of themonth. |
h. | Dimsdale Sports has a working arrangement with its bank toobtain additional loans as needed. The interest rate is 12% peryear, and interest is paid at each month-end based on the beginningbalance. Partial or full payments on these loans can be made on thelast day of the month. The company has agreed to maintain a minimumending cash balance of $39,310 in each month. |
i. | The income tax rate for the company is 39%. Income taxes on thefirst quarterâs income will not be paid until April 15. |
Required: |
Prepare a master budget for each of the first three months of2014; include the following component budgets: monthly salesbudget, monthly merchandise purchase budgets, Monthly sellingexpense budgets, Monthly general and administrative expensebudgets, Monthly capital expenditures budgets, Monthly cashbudgets, Budgeted income statement for the entire first quarter(not for each month), and Budgeted balance sheet as of March 31,2014. |
Puget Concrete is a major west coast supplier of concrete to residential and commercial builders with multiple sites in the Puget Sound area. Concrete is sold (priced) by the cubic yard including costs based on number of cubic tards, delivery costs based on miles driven, and number of truck-hours while at the job site. The company's pricing policy is to price orders for concrete at 25% over full cost per cubic yard for the order. Full cost includes variable costs for concrete, delivery and yard operations plus an allocation for the estimated annual fixed costs of delivery, site operations and administrative costs (see 2017 cost estimates below). | |||||
Delivery costs include a rate per mile, recognizing that more miles means more gas and maintenance costs, plus a rate per truck-hour (hours on the job) since if kept waiting on a job site the truck must be kept running so the concrete will not harden and the driver must be paid for that time. Site operations is the name for the company's place where the concrete is prepared and loaded in the truck for delivery. | |||||
The price per cubic foot quoted the customer is based on full cost for the job plus 25% divided by number of cubic yards for the order as follows: | |||||
Jobs (orders) are priced as follows (using cost plus method): | |||||
Number of yards x Concrete cost/yard* | * need to compute cost per yard based on cost data below | ||||
Number of Miles driven x $10 per mile | using the planned miles for that order | ||||
Number of Truck hours x $50 per hour | using the planned hours for that order | ||||
Total Job Cost | |||||
plus Markup (job cost x 25%) | |||||
Total Price for the order | |||||
Total price divided by number of cu yds ordered is the quoted price per cu yd (includes delivery) | |||||
At the start of 2017, the company estimated their costs as follows: | |||||
Costs included in concrete cost/yard: | |||||
Direct Material cost = $75 per cubic yard | |||||
Variable site operations costs = $17 per cubic yard | |||||
Fixed site operations costs = $300,000 per year | |||||
Fixed Delivery costs = $500,000 per year | |||||
Fixed Admin. costs = $2,125,000 per year | |||||
Costs included in delivery cost: | |||||
Variable Delivery costs = $10 per mile + $50 per truck hour | |||||
And estimated 2017 sales volume is as follows: | |||||
Annual totals (planned): | 2017 amount | ||||
Total Cubic Yds to be delivered (sold) | 500,000 | ||||
Total Delivery Miles | 700,000 | ||||
Total Truck-hours | 25,000 | ||||
Total number of jobs (orders) | 100 | ||||
Answer each question below (Q1 - Q5) on the tab for that number. Format answer as needed. | |||||
Use "Wrap Text" and "Merge cells" to format cells to hold the text answers on the same page (as shown with this sentence). Increase the row height to make the whole line visible. | |||||
Fill in your name on Tab 1 | |||||
Comprehensive Analysis Project questions (answer on Q# tab) | |||||
Q5 | Puget's CFO will be meeting with the bank to apply for a loan, he had the following report parepared to meet the bank's request. Review the trends based on the this data and answer the questions below to prepare for the bank meeting: | ||||
Report of key ratios for last three years: | 2016 | 2015 | 2014 | ||
Current ratio | 2.6:1 | 2.4:1 | 2.2:1 | ||
Current assets / Current liabilities | |||||
Acid test (quick ratio) | 0.9:1 | 1.0:1 | 1.1:1 | ||
(Cash + Short-term receivables) / Current liabilities | |||||
Accounts receivable turnover | 9.2 times | 10.3 times | 11.5 times | ||
Net credit sales / Accounts receivable | |||||
Inventory turnover | 8.1 times | 7.8 times | 6.2 times | ||
Cost of goods sold / Inventory | |||||
Return on total assets | 14.5% | 13.1% | 11.3% | ||
(Net income + [Interest expense x (1-Tax rate)]) / Total assets | |||||
Return on common stockholderâs equity | 17.2% | 15.1% | 12.9% | ||
Net income / Stockholdersâ equity | |||||
Priceâearnings ratio | 14.5 | 17.2 | 17.8 | ||
Market price per share / Earnings per share | |||||
Earnings per share | $1.52 | $1.51 | $1.54 | ||
Net income / Number of common shares outstanding | |||||
Note: There has been no change in number of shares outstanding. | |||||
Required: Answer each question (a - d) comparing 2016 to prior years and explain which ratio(s) were used and how they are interpreted (results of analysis). | |||||
a) Is it becoming easier for the company to pay its bills as they come due? | |||||
b) Are customers paying their credit accounts as well as they were in 2014? | |||||
c) Is the level of inventory increasing, decreasing, or remaining constant? | |||||
d) Is the market price of the companyâs stock going up or down compared to 2014? |
Required: Answer each question comparing 2016 to prior years and explain which ratio(s) were used and how they are interpreted (results of analysis). | ||||
a) Is it becoming easier for the company to pay its bills as they come due? | ||||
b) Are customers paying their credit accounts as well as they were earlier? | ||||
c) Is the level of inventory increasing, decreasing, or remaining constant? | ||||
d) Is the market price of the companyâs stock going up or down compared to prior level? | ||||