AFA 100- Midterm Exam Guide - Comprehensive Notes for the exam ( 68 pages long!)
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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.
1. Valley Sand and Gravel, Inc. are purchasing a new crusher for$500,000. It will have a ten year life and the salvage can be soldfor $50,000 at the end of year ten. There will be a major repairsat the end of year five and it will cost $10,000. Cash inflows areprojected to be $80,000 per year. The firm’s cost of capital is14%.
Calculate the NPV of the project.
Should they accept the project or not, and why?
2. Refer to Exhibits A and B below to answer the questions thatfollow.
Exhibit A
Jordan Corporation
Balance Sheet
September 30, 2015
Assets
Current Assets (in dollars)
Cash: 500,000
Accounts receivable: 600,000
Inventory: 950,000
Prepaid expenses: 50,000
Total Current Assets:2,100,000
Property, Plant and Equipment (in dollars)
Land: 250,000
Buildings, net of depreciation: 300,000
Equipment, net of depreciation: 800,000
Total Property, Plant and Equipment: 1,350,000
Total Assets: 3,450,000
Liabilities (in dollars)
Current Liabilities
Accounts payable: 700,000
Wages payable: 200,000
Interest payable: 25,000
Total Current Liabilities: 925,000
Long Term Liabilities
Notes Payable: 500,000
Bonds Payable: 450,000
Long Term Liabilities: 950,000
Total Liabilities: 1,875,000
Shareholders' Equity (in dollars)
Common stock: 500,000
Additional paid in capital: 100,000
Retained earnings: 975,000
Total Shareholder equity: 1,575,000
Total Liabilities and Equity: 3,450,000
Exhibit B
Jordan Corporation
Statement of Operations
Year Ended September 30, 2015
All figures in dollars
Sales: 6,000,000
Cost of goods sold: 3,600,000
Gross margin: 2,400,000
Selling and administrative expenses: 1,950,000
Operating income: 450,000
Interest expense: 50,000
Income before taxes: 400,000
Income taxes: 100,000
Net income: 300,000
Classify each of the above below as a liquidity, assetmanagement, financial leverage or profitability measure.
Quick (Acid Test) ratio
Current ratio
Accounts payable period
Collection period
Inventory turnover
Total debt to total assets
Interest coverage
Operating income margin
Net income margin
Return on assets
Return on equity
3. YouWin! manufacturers and sells custom wooden trophies. Eachof the company’s two divisions, production and sales, has a managerwho is responsible for all costs in his/her division. The followingare selected costs from YouWin!:
Wood
Brass ornamentation
Engraving materials
Adhesive for trophy production
Salary of sales staff
Wages of machine operators
Wages of factory custodial staff
Production manager’s salary
Rent and insurance of factory building
Rent on headquarters building
Engraving machine
Electricity for factory building
Depreciation of office equipment
Maintenance on engraving machines
For each cost listed fill in the following chart. If a definitedistinction cannot be made for any category, indicate why and whatadditional information would be needed before classification can bemade.
| Item | Product or Period | Direct or Indirect | Variable, Fixed orMixed | Controllable orUncontrollable (from view of Production Manager) |
|---|
4. Gladnish Manufacturing Company operates two shifts ofworkers. Day workers are paid $12 per hour; evening workers arepaid a shift premium of 20%. Overtime premiums are 50% above day orevening wages. For August 2009 the following factory payrollinformation is available:
Total hours worked during the month (70% by day, 30% byevening): 18,000 hours
Overtime hours worked during the month (only by day workers):1,000
What were the total wages paid to employees during themonth?
Of the amount paid in Part A, how much would be considereddirect labor cost?
Of the indirect labor cost, how much is for shift premiums andhow much is for overtime premiums?
1. Waterways sold a piece of company equipment for $24,000. The equipment had been used for ten years. It had cost $80,000 when purchases and had a 10-years life and a $6,000 salvage value. Straight-line depreciation was used.
2. Waterways purchased new equipment costing $209,200.
3. The division paid $50,000 in dividends.
| Waterways Corporation - Installation Division | |||
| Income Statement | |||
| For the year ending December 31 | |||
| Sales | $5,536,077 | ||
| Less: Cost of goods sold | 3,132,777 | ||
| Gross Profit | 2,403,300 | ||
| Operating expenses: | |||
| Advertising | $50,000 | ||
| Insurance | 400,000 | ||
| Salaries and wages | 584,640 | ||
| Depreciation | 71,319 | ||
| Other operating expenses | 21,200 | ||
| Total operating expenses | 1,127,159 | ||
| Income from operations | 1,276,141 | ||
| Other income | |||
| Gain on sale of equip | 18,000 | ||
| Other expenses | |||
| Interest expense | (12,187) | ||
| Net other income and expenses | 5,813 | ||
| Income before income tax | 1,281,954 | ||
| Income tax expenses | 384,586 | ||
| Net income | $897,368 | ||
| Waterways Corporation - Installation Division | ||||
| Balance Sheet | ||||
| December 31 | ||||
| Assets | This Year | Last Year | ||
| Current assets | ||||
| Cash | $786,797 | $746,681 | ||
| Accounts receivable | 680,750 | 542,685 | ||
| Work in process | 702,159 | 0 | ||
| Inventory | 16,766 | 7,500 | ||
| Prepaid expenses | 76,550 | 42,590 | ||
| Total current assets | 2,263,022 | 1,339,456 | ||
| Property, plant, and equipment | ||||
| Furnishings | 40,416 | 40,416 | ||
| Equipment | 929,400 | 800,200 | ||
| Buildings | 450,000 | 450,000 | ||
| Land | 300,000 | 300,000 | ||
| Accumulated depreciation | (482,523) | (485,204) | ||
| Total property, plant, and equipment | 1,237,293 | 1,105,412 | ||
| Total Assets | $3,500,315 | $2,444,868 | ||
| Liabilities and Stockholders' Equity | ||||
| Current liabilities | ||||
| Accounts payable | $157,095 | $128,360 | ||
| Income taxes payable | 101,344 | 79,989 | ||
| Wages payable | 4,517 | 1,984 | ||
| Interest payable | 1,187 | 0 | ||
| Other current liabilities | 14,515 | 15,246 | ||
| Revolving bank loan payable | 15,000 | 0 | ||
| Total current liabilities | 293,658 | 225,579 | ||
| Long-term liabilities | ||||
| Notes payable | 140,000 | 0 | ||
| Total liabilities | 433,658 | 225,579 | ||
| Stockholders' equity | ||||
| Common stock | 1,250,000 | 1,250,000 | ||
| Retained earnings | 1,816,657 | 969,289 | ||
| Total stockholders' equity | 3,066,657 | 2,219,289 | ||
| Total liabilities and stockholders' equity | $3,500,315 | $2,444,868 | ||
Instructions:
a. Prepare a statement of cash flow using the indirect method for this year.
b. Determine free cash flow.
