Question 1
1. Maximization of shareholder wealth as a goal is superior to profit maximization because: a. it considers the time value of the money. c. it considers uncertainty. d. A and C 2. Revenues are taxed a. to achieve socially desirable goals. b. to provide revenues for government expenditures. c. for economic stabilization. d. all of the above 3. Emery Inc. had $5 million of gross income, operating expenses of $1 million, paid $1 million of interest on borrowing of $10 million, and paid a dividend of $0.50 million. Emery Inc.?s taxable income is a. $4 million. b. $3 million. c. $3.5 million. d. $2.5 million. 4. Given the following tax rate schedule, what is the tax liability for a corporation with taxable income of $8 million? Corporate Tax Rates Taxable Income 15% $0 - $50,000 25% $50,001 - $75,000 34% $75,001 - $10,000,000 35% over $10,000,000 Additional surtax of 5% on income between $100,000 and $335,000 Additional surtax of 3% on income between $15,000,000 and $18,333,333 a. $2,715,000 b. $2,720,000 c. $2,694,500 d. $2,708,250 5. The curse of competitive markets a. May be lessened by obtaining patents for new ideas that protect companies from competitors. b. Implies that profitable industries will become smaller as companies drop out to avoid competition. c. Means that money spent on innovation is wasted because competitors will rush in and eliminate any excess profits. d. Means that companies cannot earn exceptional profits. 6. Which of the following statements best represents the ?Agency Problem?? a. The agency problem results from the separation of management and the ownership of the firm. b. The agency problem may interfere with the implementation of maximizing shareholder wealth. c. Managers might attempt to benefit themselves in terms of salary and perquisites at the expense of shareholders. d. all of the above 7. What was the average annual rate of return on 3-month U.S. Treasury bills during the period 1981 to 2005? a. 10.4% b. 5.68% c. 3.84% d. 6.99% Table 3-1 Jones Company Financial Information December 2007 December 2008 Net income $2,000 $5,000 Accounts receivable 750 750 Accumulated depreciation 1,000 1,500 Common stock 4,500 5,000 Paid-in capital 7,500 8,000 Retained earnings 1,500 2,500 Accounts payable 750 750 8. Based on the information in Table 3-1, assuming that no common stock was repurchased during the year, the firm issued how much new common stock during 2008? a. $1,500 b. $1,000 c. $2,000 d. $500 9. Higher inventory turnover suggests that a. the company?s inventory is more liquid. b. the company?s inventory is somewhat obsolete. c. the company has a higher inventory balance. d. the company?s sales are higher. 10. Given an accounts receivable turnover of 20 and annual credit sales of $400,000, the average collection period is: a. 20 days b. 45.625 days c. 17.49 days d. 18.25 days Table 4-1 Garland Company Balance Sheet Assets: Cash and marketable securities $500,000 Accounts receivable 800,000 Inventories 1,350,000 Prepaid expenses 50,000 Total current assets $2,700,000 Fixed assets 5,000,000 Less: accum. depr. (2,000,000) Net fixed assets $3,000,000 Total assets $5,700,000 Liabilities: Accounts payable $400,000 Notes payable 900,000 Accrued taxes 75,000 Total current liabilities $1,375,000 Long-term debt 1,200,000 Owner?s equity 3,125,000 Total liabilities and owner?s equity $5,700,000 Net sales (all credit) $8,000,000 Less: Cost of goods sold (3,500,000) Selling and administrative expense (2,000,000) Depreciation expense (250,000) Interest expense (150,000) Earnings before taxes 2,100,000 Income taxes (700,000) Net income $1,400,000 Common stock dividends $500,000 Common Shares Outstanding 1,000,000 11. Based on the information in Table 4-1, the debt ratio is: a. 21.1% b. 48.8% c. 45.2% d. 22.6% Table 4-3 Lesli Corporation Balance Sheet Income Statement Assets: Cash $150,000 Sales (all credit) $6,000,000 Accounts receivable 350,000 Cost of goods sold (3,000,000) Inventory 600,000 Operating expenses (900,000) Net fixed assets 1,900,000 Interest expense (750,000) Total assets 3,000,000 Income taxes (500,000) Net income 850,000 Liabilities and owners? equity: Accounts payable $150,000 Notes payable 250,000 Long-term debt 1,200,000 Owners? Equity 1,400,000 Total L. + O.E. 3,000,000 12 Based on the information in Table 4-3, assuming that the firm has no preferred stock, and paid $250,000 in common dividends, the firm?s return on equity was: a. 61% b. 32% c. 43% d. 79% 13. You deposit $4,500 per year at the end of each of the next 25 years into an account that pays 10% compounded annually. How much could you withdraw at the end of each of the 20 years following your last deposit if all withdrawals are the same dollar amount? (The twenty-fifth and last deposit is made at the beginning of the 20-year period. The first withdrawal is made at the end of the first year in the 20-year period.) a. $51,983 b. $22,128 c. $45,987 d. $38,323 14. If you put $10,000 in an investment that returns 14 percent compounded monthly what would you have after 12 years (round to nearest $10)? a. $11,490 b. $53,140 c. $48,180 d. $61,270 15. Assume that WhirledCom has an issue of 15-year $1,000 par value bonds that pay 6% interest, semi-annually. Further assume that today?s required rate of return on these bonds is 9%. How much would these bonds sell for today? Round off to the nearest $1. a. $1,321 b. $1,066 c. $756 d. $864 16. $1,000 par value 12-year bond with a 9 percent coupon rate recently sold for $980. The yield to maturity is: a. 8.8% b. less than 8% c. 9 percent d. greater than 9 percent 17. What is the yield to maturity of a corporate bond with 10 years to maturity, a coupon rate of 6% per year, a $1,000 par value, and a current market price of $1,147? Assume semi-annual coupon payments. a. 4.7% b. 5.3% c. 6.0% d. 4.2% 18. Linen Supply Co. paid a dividend of $3.25 on its common stock yesterday. The company?s dividends are expected to grow at a constant rate of 5.5% indefinitely. The required rate of return on this stock is 17.5%. You observe a market price of $27.50 for the stock. Should you purchase this stock? a. Yes, the market price is below the intrinsic value of the stock. b. Yes, but only if you can keep the stock for at least 5 years. c. No, the growth rate in dividends is too far below the required return. d. No, the market price is above the intrinsic value of the stock. 19. Chambers Corporation?s ROE is 18%. Their dividend payout ratio is 80%. The last dividend, just paid, was $2.20. If dividends are expected to grow by the company?s internal growth rate indefinitely, what is the current value of Chambers common stock if its required return is 20%? a. $12.89 b. $12.56 c. $15.43 d. $13.90 20. Northwest Industries is considering a project with the following cash flows: Initial Outlay = $2,800,000 After-tax operating cash flows for years 1-4 = $850,000 per year Additional after-tax terminal cash flow at end of Year 4 = $125,000 Compute the net present value of this project if the company?s discount rate is 14%. a. $239,209 b. $725,000 c. -$138,561 d. -$249,335 21 Compute the payback period for a project with the following cash flows received uniformly within each year: Initial Outlay = $100 Cash Flows: Year 1 = $40 Year 2 = $50 Year 3 = $60 a. 2.17 years b. 3 years c. 4 years d. 3.17 years 22. What is the net present value?s assumption about how cash flows are re-invested? a. They are reinvested at the IRR. b. They are reinvested only at the end of the project. c. They are reinvested at the APR. d. They are reinvested at the firm?s discount rate. 23. Your firm is considering an investment that will cost $750,000 today. The investment will produce cash flows of $250,000 in year 1, $300,000 in years 2 through 4, and $100,000 in year 5. The discount rate that your firm uses for projects of this type is 13.25%. What is the investment?s profitability index? a. 1.4 b. 1.6 c. 1.2 d. .2 24. If the NPV (Net Present Value) of a project with multiple sign reversals is positive, then the project?s required rate of return ________ its calculated IRR (Internal Rate of Return). a. must be greater than b. could be greater or less than c. must be less than d. Cannot be determined without actual cash flows. 25. Your company is considering the replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight-line method over a useful life of 10 years. The old van could be sold today for $5,000. The new van has an invoice price of $75,000, and it will cost $5,000 to modify the van to carry the company?s products. Cost savings from use of the new van are expected to be $22,000 per year for 5 years, at which time the van will be sold for its estimated salvage value of $15,000. The new van will be depreciated using the simplified straightline method over its 5-year useful life. The company?s tax rate is 35%. Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the incremental free cash flow for year one? a. $22,250 b. $18,850 c. $21,305 d. $19,900 26. A new machine can be purchased for $1,000,000. It will cost $65,000 to ship and $35,000 to modify the machine. A $30,000 recently completed feasibility study indicated that the firm can employ an existing factory owned by the firm, which would have otherwise been sold for $150,000. The firm will borrow $750,000 to finance the acquisition. Total interest expense for 5-years is expected to approximate $250,000. What is the investment cost of the machine for capital budgeting purposes? a. $2,030,000 b. $1,530,000 c. $1,100,000 d. $1,250,000 e. $1,280,000 27. A company has preferred stock that can be sold for $28 per share. The preferred stock pays an annual dividend of 5% based on a par value of $100. Flotation costs associated with the sale of preferred stock equal $1.50 per share. The company?s marginal tax rate is 35%. Therefore, the cost of preferred stock is: a. 18.87% b. 17.86% c. 11.61% d. 12.26% 28. Burns and Nuble is considering an investment in a project which would require an initial outlay of $320,000 and produce expected cash flows in years 1-5 of $87,385 per year. You have determined that the current after-tax cost of the firm?s capital (required rate of return) for each source of financing is as follows: Cost of Long-Term Debt 8% Cost of Preferred Stock 12% Cost of Common Stock 16% Long term debt currently makes up 20% of the capital structure, preferred stock 10%, and common stock 70%. What is the net present value of this project? a. -$13,876 b. -$20,000 c. $0 d. $287,692 e. $1,568 29. JBC Corp. declared a dividend of $2 per share, which was an increase of 25% from the prior year, yet JBC Corp. stock declined by 3% the day of the announcement. RBG Corp. declared a dividend of $2 per share, which was the same as the prior year, and its stock increased in value by 2% on the day of the announcement. These events could be most readily explained by the a. information effect. b. expectations theory. c. clientele effect. d. residual dividend theory. 30. Use the ?percent of sales method? of preparing pro forma financial statements to determine the projection for next year?s inventory. Make the following assumptions: current year?s sales are $24,500,000; current year?s cost of goods sold is $15,925,000; sales are expected to rise by 25%. The firm?s investment in inventory in the current year is $3,621,300. What is the projection for next year?s inventory? a. $5,555,000 b. $6,125,000 c. $4,526,600 d. $3,981,250 31. Buster Enterprises? projected sales for the first six months of 2008 are given below: Jan. $400,000 April $450,000 Feb. $540,000 May $480,000 Mar. $350,000 June $520,000 30% of sales are collected in cash at time of sale, 60% are collected in the month following the sale, and the remaining 10% are collected in the second month following the sale. Cost of goods sold is 70% of sales. Purchases are made in the month prior to the sales, and payments for purchases are made in the month of the sale. Total other cash expenses are $50,000/month. The company?s cash balance as of February 28, 2008 will be $30,000. Excess cash will be used to retire short-term borrowing (if any). Buster Enterprises has no short term borrowing as of February 28, 2008. Assume that the interest rate on short-term borrowing is 1% per month. The company must have a minimum cash balance of $20,000 at the beginning of each month. What is Buster Enterprises? earnings before interest and taxes for April 2008? a. $ 85,000 b. $159,000 c. $138,000 d. $135,000 32. Fielding Wilderness Outfitters had projected its sales for the first six months of 2008 to be as follows: Jan. $ 50,000 April $180,000 Feb. $ 60,000 May $240,000 Mar. $100,000 June $240,000 Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company?s cash balance as of March 1st, 2008 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). Fielding has no short-term borrowing as of March 1st, 2008. Assume that the interest rate on short-term borrowing is 1% per month. What is Fielding?s projected total receipts (collections) for April? a. $36,000 b. $124,000 c. -$4,000 d. $180,000
Question 2
Write a five to six (5-6) page paper in which you: 1. Explain the importance of maintaining accurate and objective employee records, indicating the consequences that may result from lack of record keeping. Provide support for your rationale. 2. Provide an example of formal and an example of informal documentation that would normally be maintained in an employee file, indicating how each is likely to protect an employer. 3. Determine the most significant factor that will ensure an effective legal termination, indicating the most likely way employees can protect themselves from termination in a downsizing situation. Provide support for your rationale. 4. Analyze two (2) major challenges that today?s health care leaders face in trying to uphold the ethics of critique, justice, and caring, indicating how managers can balance the need for ethics with employee and organizational needs. 5. Create a detailed outline of an effective succession planning process that will help ensure a smooth transition as members of the management team at your organization begin to retire. (The plan should prescribe, at a minimum, how to identify employees for advancement, training and development programs, mentorships, and a timeline for preparing leaders for their role.) 6. From both a management and employee perspective, justify or dispute unionization. Provide support for your rationale. 7. Suggest the best way in which HR can continue to be an effective strategic partner in helping this organization achieve its future goals. Provide support for your rationale. 8. Use at least three (3) quality academic resources in this assignment. Note: Wikipedia and other Websites do not qualify as academic resources. Your assignment must follow these formatting requirements: ? Be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides; citations and references must follow APA or school-specific format. Check with your professor for any additional instructions. ? Include a cover page containing the title of the assignment, the student?s name, the professor?s name, the course title, and the date. The cover page and the reference page are not included in the required assignment page length. The specific course learning outcomes associated with this assignment are: ? Analyze the unique aspects of managing human resources in health care organizations. ? Demonstrate the importance of HR as a strategic partner in health care organizations. ? Analyze the impact of labor unions on the health care industry. ? Use technology and information resources to research issues in health services human resource management. ? Write clearly and concisely about health services human resource management using proper Writing mechanics.
Question 3
4(a) Connie is employed as a tax accountant. For calendar year 2009, she had AGI of $80,000 and paid the following medical expenses: Medical insurance premiums $2,600 Doctor and dentist bills for Earl and Janet (Connie?s Parents) 5,500 Doctor and dentist bills for Connie 4,500 Prescribed medicines for Connie 200 Non-prescribed insulin for Connie 550 Earl and Janet would qualify as Connie?s dependents except that they file a joint return. Connie?s medical insurance policy does not cover them. Connie filed a claim for $2,100 of her own expenses with her insurance company in December 2009 and received the reimbursement in January 2010. What is Connie?s maximum allowable medical expense deduction for 2009? a. $1,850. b. $7,350. c. $11,550. d. $11,850. e. None of the above. 4(b) Joanne is single and does a lot of business entertaining at home. Joanne?s 80-year old dependent grandfather who lived with Joanne, needs medical and nursing care. he moved to Sierra Nursing Home. During the year, Joanne made the following payments on behalf of Aaron: Room at Sierra $ 9,000 Meals for Aaron 1,700 Doctor and nurse fees 1,400 Cable TV service for Aaron?s room 214 Total $12,314 Sierra has medical staff in residence. Disregarding the 7.5% floor, how much, if any, of these expenses qualify for a medical deduction by Joanne? a. $12,314. b. $12,100. c. $10,400. d. $3,100. e. None of the above. 4(c) Upon the recommendation of a physician, Gabriel has an elevator installed in his personal residence. He suffers from heart problems. In connection with this matter, Gabriel incurs and pays the following amounts during the current year: Elevator and cost of installation $13,000 Increase in utility bills due to the elevator 900 Cost of certified appraisal 700 The system has an estimated useful life of 20 years. The appraisal was to determine the value of Gabriel?s residence with and without the system. The appraisal states that the system increased the value of Gabriel?s residence by $1,000. Expenses qualifying for the medical deduction in the current year total: a. $14,600. b. $13,900. c. $13,000. d. $12,900. e. None of the above. 4(d) Ernest uses the cash method of accounting and lives in a state that imposes an income tax (including withholding from wages). On April 14, 2009, he files his state return for 2008, paying an additional $600 in state income taxes. During 2009, his withholdings for state income tax purposes amount to $3,700. On April 12, 2009, he files his state return for 2008 claiming a refund of $900. Ernest receives the refund on August 3, 2009. If Ernest itemizes deductions, how much may he claim as a deduction for state income taxes on his Federal return for calendar year 2009 (filed in April, 2010)? a. $3,400. b. $3,700. c. $3,900. d. $4,300. e. None of the above.
Question 4
Week 8 Assignment: Write a Topic Paper, Annotated Bibliography and Reflective Paper Activity Description The literature review resources listed above provide some insights into the development of a literature review. NCU supports the thematic approach described in the resources. The annotated bibliography you have been developing during this course should provide the sources for the literature review. Annotated Bibliography: Assemble the 15+ annotations you have been accumulating during this course. They should be presented in the same order as an APA reference list. Reflective Look DBA vs. Ph.D.: As you begin the dissertation part of your doctoral journey, it is a good time to reflect on the degree you are pursuing. Using the Difference Between the PhD and Applied Doctorates document, write a short reflective paper outlining your professional goals related to the degree program in which you are enrolled. Your final submission should include: ?Your Topic Paper (outlined below) ?Your Annotated Bibliography developed over the course. ?A 1-2 page reflective paper on the relationship of your professional goals and your degree with 1-2 references. Assemble and submit your topic paper. Use the sample outline below to assemble an introduction, literature review, problem statement, purpose statement, research questions and methodology, and summary. Topic Paper (Components and Order) ?Introduction ?Brief Literature Review ?Problem Statement ?Purpose Statement ?Research Questions and Methodology ?Summary In developing the topic paper review and, as necessary, update your problem statement, purpose statement, research questions, and methodology to reflect your current perspectives and understanding of these aspects of your study. The topic paper should reflect a clear and logical linkage among the problem, purpose, and research questions. Length: 12-15 pages not including title and reference pages References: Minimum of 15 scholarly resources. Your paper should demonstrate thoughtful consideration of the ideas and concepts that are presented in the course and provide new thoughts and insights relating directly to this topic. Your paper should reflect scholarly writing and current APA standards. Review APA Form and Style. Be sure to adhere to Northcentral University's Academic Integrity Policy. View the Northcentral Academic Integrity Tutorial to refresh your knowledge of how to achieve academic integrity. Upload your assignment using the Upload Assignment button below.
Question 5
1) Identify accounts by category and financial statements. Listed here are a number of financial statement captions. Indicate in the spaces to the right of each caption the category of each item and the financial statement(s) on which the item can usually be found. Category Financial Statement Asset A Balance Sheet BS Liability L Income Statement IS Owner?s equity OE Revenue R Expense E Gain G Loss L Accumulated depreciation ________ _________ Long-Term debt ________ _________ Equipment ________ _________ Loss on sale of short-term Investments ________ ________ Net income ________ _________ Merchandise inventory ________ _________ Other accrued liabilities ________ _________ Dividends paid _________ _________ Cost of goods sold _________ _________ Additional paid-in-capital _________ _________ Interest Income _________ _________ Selling expenses _________ _________ 2) Understanding and analyzing financial statement relationships?merchandising organisation. _Gary?s TV had the following accounts and amounts in its financial statements on December 31, 2009. Assume that all balance sheet items reflect account balances at December 31, 2009, and that all income statement items reflect activities that occurred during the year Interest expense...........................................................$ 36 000 Paid-in capital................................................................$80 000 Accumulated depreciation.............................................$24 000 Notes payable (long-term).............................................$280 000 Rent expense..................................................................$72 000 Merchandise inventory...................................................$840 000 Accounts receivable........................................................$192 000 Depreciation expense......................................................$12 000 Land..................................................................................$128 000 Retained earnings.............................................................$900 000 Cash...................................................................................$144 000 Cost of goods sold..............................................................$1,760,000 Equipment..........................................................................$72 000 Income tax expense............................................................$240 000 Accounts payable................................................................$92 000 Sales revenue.......................................................................$2,480,000 Required: a. Calculate the difference between current assets and current liabilities for Gary?s TV at December 31, 2009. b. Calculate the total assets at December 31, 2009. c. Calculate the earnings from operations (operating income) for the year ended December 31, 2009. d. Calculate the net income (or loss) for the year ended December 31, 2009. e. What was the average income tax rate for Gary?s TV for 2009? f. If $256,000 of dividends had been declared and paid during the year, what was the January 1, 2009, balance of retained earnings. 3) ROI analysis using DuPont model: Charlie?s Furniture Store has been in business for several years. The firm?s owners has described the store as a ?high-price, high service? operation that provides lots of assistance to its customers. Margin has averaged a relatively high 32% per year for several years, but turnover has been a relatively low 0.4% based on average total assets of $1,600,000. A discount furniture store is about to open in the area served by Charlie?s, and management is considering lowering prices to compete effectively. Required: a) Calculate current sales and ROI for Charlie?s Furniture Store. b) Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay the same, calculate the sales that would be required to have the same ROI as Charlie?s currently earns. c) Suppose you presented the results of your analysis in parts a and b of this problem to Charlie, and he replied, ?What are you telling me? If I reduce my prices as planned, then I have to practically double my sales volume to earn the same return?? Given the results of your analysis, how would you react to Charlie? d) Now suppose Charlie says, ?You know, I?m not convinced that lowering prices is my only option in staying competitive. What if I were to increase my marketing effort? I?m thinking about kicking off a new advertising campaign after conducting more extensive market research to better identify who my target customer groups are.? In general, explain to Charlie what the likely impact of a successful strategy of this nature would be on margin, turnover, and ROI. 4) Record transactions and calculate financial statement amounts: The following are the transactions relating to the formation of Cardinal Mowing Services, Inc., and its first month of operations. Prepare an answer sheet with the columns shown. Record each transaction in the appropriate columns of your answer sheet. Show the amounts involved and indicate how each account is affected (+or -). After all transactions have been recorded, calculate the total assets, liabilities and owner?s equity at the end of the month and calculate the amount of net income for the month. a) The firm was organized and the owner?s invested cash of $600 b) The company borrowed $900 from a relative of the owners: a short-term note was signed. c) Two lawn mowers costing $480 each and a trimmer costing $130 were purchased for cash. The original list price of each mower was $610, but a discount was received because the seller was having a sale. d) Gasoline, oil, and several packages of trash bags were purchased for cash of $90. e) Advertising flyers announcing the formation of the business and a newspaper ad were purchased. The cost of these items, $170, will be paid in 30 days. f) During the first two weeks of operations, 47 lawns were mowed. The total revenue for this work was $705: $465 was collected in cash and the balance will be received within 30 days. g) Employees were paid $420 for their work during the first two weeks. h) Additional gasoline, oil, and trash bags costing $110 were purchased for cash. i) In the last two weeks of the first month, revenues totalled $920, of which $375 was collected. j) Employee wages for the last two weeks totalled $510: these will be paid during the first week of the next month. k) It was determined that at the end of the month the cost of the gasoline, oil, and trash bags still on hand was $30. l) Customers paid a total of $150 due from mowing services provided during the first two weeks. The revenue for these services was recognized in the transaction in f) Answer sheet: ___________________________________________________________ Assets=Liabilities + Owner?s Liability Transaction: Cash+Accounts Receivable+Supplies+Equipment= Notes Payable+Accounts Payable+Paid-In Capital+Retained Earnings+Revenues-Expenses 5) Analysis of accounts receivable and allowance for bad debts-determine beginning balances - A portion of the current assets section of the December 31, 2009, balance sheet for Carr Co., is presented here: Accounts receivable......................................................$50,000 Less: Allowance for bad debts........................................(7,000) $43,000 The company?s accounting records revealed the following information for the year ended December 31, 2009: Sales (all on account)......................................................$400,000 Cash collections from customers....................................$410,000 Accounts written off........................................................$ 15000 Bad debts expense (accrued at 12/31/09).......................$ 12000 Required: Using the information provided for 2009, calculate the net realizable value of accounts receivable at December 31, 2008, and prepare the appropriate balance sheet presentation for Carr Co, as of that point in time. (Hint: Use T-accounts to analyze the Accounts Receivable and Allowance for Bad Debts accounts. Remember that you are solving for the beginning balance of each account 6) Depreciation calculation methods - Kleener Co. Acquired a new delivery truck at the beginning of its current fiscal year. The truck cost $26,000 and has an estimated useful life of four years and an estimated salvage value of $4,000. Required: a) Calculate depreciation expense for each year of the truck?s life using Straight ?line depreciation b) Calculate the truck?s net book value at the end of its third year of use under straight-line depreciation. 7) Calculate operating income and net income - The following information is available from the accounting records of Manahan Co. For the year ended December 31, 2009: Net cash provided by financing activities......................................$112,000 Dividends paid...............................................................................$ 18,000 Extraordinary loss from flood, net of tax savings of $$35,000......$105,000 Income tax expense.......................................................................$ 26,000 Other selling expenses...................................................................$ 13,000 Net sales.........................................................................................$644,000 Advertising expense........................................................................$ 45,000 Accounts receivable.........................................................................$6 2,000 Cost of goods sold.......................................................................$368,000 General and administrative expenses..........................................$143,000 Required: a) Calculate the operating income for Manahan Co. For the year ended December31, 2009. b) Calculate the company?s net income for 2009. 8) Analytical problem- comparative analysis of profitability and financial leverage measures - The annual reports of Dow Jones & Company and the McGraw-Hill Companies, two publishing and information services companies, indicate the following for the year ended December 31, 2006 (amounts in millions): Dow Jones McGraw-Hill Operating revenues............................... $1,784 $6,255 Net income.............................................$ 387 882 Total assets, January 1, 2006..................$1,782 6,396 Total liabilities, January 1, 2006..............$1,620 3,283 Total liabilities, December 31, 2006........$1,457 3,363 Total stockholder?s equity, December 31, 2006........$ 499 2,680 Required: a) Calculate ROI and ROE for each company for 2006. (Hint: You will need to calculate some of the numbers used in the denominator of these ratios) b) Based on the results of your ROI and ROE analysis in part a, do you believe that either firm uses financial leverage more effectively than the other? Explain your answer. (Hint: Compare the percentage differences between ROI and ROE for each firm. Is there a significant difference that would suggest that one firm uses leverage more effectively than the other?) c) Calculate the debt ratio and debt/equity ratio for each firm at the end of 2006. d) Compare the results of your analysis in part c to your expectations concerning the relative use of financial leverage in part b. Do the debt and debt/equity ratios calculated in part c make sense relative to your expectations? Explain your answer. 9) Cost classifications For each of the following cost, check the column(s) that most likely apply. Cost Variable Fixed Wages of assembly-line workers ------------- -------------- Depreciation-plant equipment ------------- -------------- Glue and thread ------------- -------------- Shipping costs ------------- -------------- Raw materials handling costs ------------- ------------- Salary of public relations manager ------------- ------------- Production run setup costs ------------- ------------- Plant utilities --------------- ------------- Electricity cost of retail stores --------------- ------------- Research and development expense --------------- -------------- 10) Cost classifications - For each of the following cost, check the columns that most likely apply (both variable and fixed might apply for some costs). Product Costs Direct Indirect Period Variable Fixed Wages of assembly-line workers ------- --------- -------- ------- ------ Depreciation of plant equipment ------- --------- -------- ------- ------ Glue and thread ------- --------- -------- ------ ------- Outbound shipping costs ------- --------- -------- ------- ------- Raw materials handling costs -------- --------- -------- ------- ------- Salary of public relations manager -------- --------- --------- ------- ------- Production run setup costs -------- --------- --------- ------- ------- Plant utilities --------- --------- --------- ------- ------- Electricity cost of retail stores ---------- -------- ---------- -------- ------- Research and development expense -------- -------- ---------- -------- ------- 11) Performance reporting and flexible budgeting - For the stamping department of a manufacturing firm, the standard cost for direct labor is $12 per hour, and the production standard calls for 1,000 stampings per hour. During June, 168 hours were required for actual production of 148,000 stampings. Actual direct labor cost for the stamping department for June was $2.184. Required: a) Complete the following performance report for June: Fixed Budget Actual Budget Variance Direct labor b) Analyze the budget variance by calculating the direct labor efficiency and rate variances for June. c) What alternatives to the preceding monthly report could improve control over the stamping department?s direct labor? 1) Identify accounts by category and financial statements. Listed here are a number of financial statement captions. Indicate in the spaces to the right of each caption the category of each item and the financial statement(s) on which the item can usually be found. Category Financial Statement Asset A Balance Sheet BS Liability L Income Statement IS Owner?s equity OE Revenue R Expense E Gain G Loss L Accumulated depreciation ________ _________ Long-Term debt ________ _________ Equipment ________ _________ Loss on sale of short-term Investments ________ ________ Net income ________ _________ Merchandise inventory ________ _________ Other accrued liabilities ________ _________ Dividends paid _________ _________ Cost of goods sold _________ _________ Additional paid-in-capital _________ _________ Interest Income _________ _________ Selling expenses _________ _________ 2) Understanding and analyzing financial statement relationships?merchandising organisation. _Gary?s TV had the following accounts and amounts in its financial statements on December 31, 2009. Assume that all balance sheet items reflect account balances at December 31, 2009, and that all income statement items reflect activities that occurred during the year Interest expense...........................................................$ 36 000 Paid-in capital................................................................$80 000 Accumulated depreciation.............................................$24 000 Notes payable (long-term).............................................$280 000 Rent expense..................................................................$72 000 Merchandise inventory...................................................$840 000 Accounts receivable........................................................$192 000 Depreciation expense......................................................$12 000 Land..................................................................................$128 000 Retained earnings.............................................................$900 000 Cash...................................................................................$144 000 Cost of goods sold..............................................................$1,760,000 Equipment..........................................................................$72 000 Income tax expense............................................................$240 000 Accounts payable................................................................$92 000 Sales revenue.......................................................................$2,480,000 Required: a. Calculate the difference between current assets and current liabilities for Gary?s TV at December 31, 2009. b. Calculate the total assets at December 31, 2009. c. Calculate the earnings from operations (operating income) for the year ended December 31, 2009. d. Calculate the net income (or loss) for the year ended December 31, 2009. e. What was the average income tax rate for Gary?s TV for 2009? f. If $256,000 of dividends had been declared and paid during the year, what was the January 1, 2009, balance of retained earnings. 3) ROI analysis using DuPont model: Charlie?s Furniture Store has been in business for several years. The firm?s owners has described the store as a ?high-price, high service? operation that provides lots of assistance to its customers. Margin has averaged a relatively high 32% per year for several years, but turnover has been a relatively low 0.4% based on average total assets of $1,600,000. A discount furniture store is about to open in the area served by Charlie?s, and management is considering lowering prices to compete effectively. Required: a) Calculate current sales and ROI for Charlie?s Furniture Store. b) Assuming that the new strategy would reduce margin to 20%, and assuming that average total assets would stay the same, calculate the sales that would be required to have the same ROI as Charlie?s currently earns. c) Suppose you presented the results of your analysis in parts a and b of this problem to Charlie, and he replied, ?What are you telling me? If I reduce my prices as planned, then I have to practically double my sales volume to earn the same return?? Given the results of your analysis, how would you react to Charlie? d) Now suppose Charlie says, ?You know, I?m not convinced that lowering prices is my only option in staying competitive. What if I were to increase my marketing effort? I?m thinking about kicking off a new advertising campaign after conducting more extensive market research to better identify who my target customer groups are.? In general, explain to Charlie what the likely impact of a successful strategy of this nature would be on margin, turnover, and ROI. 4) Record transactions and calculate financial statement amounts: The following are the transactions relating to the formation of Cardinal Mowing Services, Inc., and its first month of operations. Prepare an answer sheet with the columns shown. Record each transaction in the appropriate columns of your answer sheet. Show the amounts involved and indicate how each account is affected (+or -). After all transactions have been recorded, calculate the total assets, liabilities and owner?s equity at the end of the month and calculate the amount of net income for the month. a) The firm was organized and the owner?s invested cash of $600 b) The company borrowed $900 from a relative of the owners: a short-term note was signed. c) Two lawn mowers costing $480 each and a trimmer costing $130 were purchased for cash. The original list price of each mower was $610, but a discount was received because the seller was having a sale. d) Gasoline, oil, and several packages of trash bags were purchased for cash of $90. e) Advertising flyers announcing the formation of the business and a newspaper ad were purchased. The cost of these items, $170, will be paid in 30 days. f) During the first two weeks of operations, 47 lawns were mowed. The total revenue for this work was $705: $465 was collected in cash and the balance will be received within 30 days. g) Employees were paid $420 for their work during the first two weeks. h) Additional gasoline, oil, and trash bags costing $110 were purchased for cash. i) In the last two weeks of the first month, revenues totalled $920, of which $375 was collected. j) Employee wages for the last two weeks totalled $510: these will be paid during the first week of the next month. k) It was determined that at the end of the month the cost of the gasoline, oil, and trash bags still on hand was $30. l) Customers paid a total of $150 due from mowing services provided during the first two weeks. The revenue for these services was recognized in the transaction in f) Answer sheet: ___________________________________________________________ Assets=Liabilities + Owner?s Liability Transaction: Cash+Accounts Receivable+Supplies+Equipment= Notes Payable+Accounts Payable+Paid-In Capital+Retained Earnings+Revenues-Expenses 5) Analysis of accounts receivable and allowance for bad debts-determine beginning balances - A portion of the current assets section of the December 31, 2009, balance sheet for Carr Co., is presented here: Accounts receivable......................................................$50,000 Less: Allowance for bad debts........................................(7,000) $43,000 The company?s accounting records revealed the following information for the year ended December 31, 2009: Sales (all on account)......................................................$400,000 Cash collections from customers....................................$410,000 Accounts written off........................................................$ 15000 Bad debts expense (accrued at 12/31/09).......................$ 12000 Required: Using the information provided for 2009, calculate the net realizable value of accounts receivable at December 31, 2008, and prepare the appropriate balance sheet presentation for Carr Co, as of that point in time. (Hint: Use T-accounts to analyze the Accounts Receivable and Allowance for Bad Debts accounts. Remember that you are solving for the beginning balance of each account 6) Depreciation calculation methods - Kleener Co. Acquired a new delivery truck at the beginning of its current fiscal year. The truck cost $26,000 and has an estimated useful life of four years and an estimated salvage value of $4,000. Required: a) Calculate depreciation expense for each year of the truck?s life using Straight ?line depreciation b) Calculate the truck?s net book value at the end of its third year of use under straight-line depreciation. 7) Calculate operating income and net income - The following information is available from the accounting records of Manahan Co. For the year ended December 31, 2009: Net cash provided by financing activities......................................$112,000 Dividends paid...............................................................................$ 18,000 Extraordinary loss from flood, net of tax savings of $$35,000......$105,000 Income tax expense.......................................................................$ 26,000 Other selling expenses...................................................................$ 13,000 Net sales.........................................................................................$644,000 Advertising expense........................................................................$ 45,000 Accounts receivable.........................................................................$6 2,000 Cost of goods sold.......................................................................$368,000 General and administrative expenses..........................................$143,000 Required: a) Calculate the operating income for Manahan Co. For the year ended December31, 2009. b) Calculate the company?s net income for 2009. 8) Analytical problem- comparative analysis of profitability and financial leverage measures - The annual reports of Dow Jones & Company and the McGraw-Hill Companies, two publishing and information services companies, indicate the following for the year ended December 31, 2006 (amounts in millions): Dow Jones McGraw-Hill Operating revenues............................... $1,784 $6,255 Net income.............................................$ 387 882 Total assets, January 1, 2006..................$1,782 6,396 Total liabilities, January 1, 2006..............$1,620 3,283 Total liabilities, December 31, 2006........$1,457 3,363 Total stockholder?s equity, December 31, 2006........$ 499 2,680 Required: a) Calculate ROI and ROE for each company for 2006. (Hint: You will need to calculate some of the numbers used in the denominator of these ratios) b) Based on the results of your ROI and ROE analysis in part a, do you believe that either firm uses financial leverage more effectively than the other? Explain your answer. (Hint: Compare the percentage differences between ROI and ROE for each firm. Is there a significant difference that would suggest that one firm uses leverage more effectively than the other?) c) Calculate the debt ratio and debt/equity ratio for each firm at the end of 2006. d) Compare the results of your analysis in part c to your expectations concerning the relative use of financial leverage in part b. Do the debt and debt/equity ratios calculated in part c make sense relative to your expectations? Explain your answer. 9) Cost classifications For each of the following cost, check the column(s) that most likely apply. Cost Variable Fixed Wages of assembly-line workers ------------- -------------- Depreciation-plant equipment ------------- -------------- Glue and thread ------------- -------------- Shipping costs ------------- -------------- Raw materials handling costs ------------- ------------- Salary of public relations manager ------------- ------------- Production run setup costs ------------- ------------- Plant utilities --------------- ------------- Electricity cost of retail stores --------------- ------------- Research and development expense --------------- -------------- 10) Cost classifications - For each of the following cost, check the columns that most likely apply (both variable and fixed might apply for some costs). Product Costs Direct Indirect Period Variable Fixed Wages of assembly-line workers ------- --------- -------- ------- ------ Depreciation of plant equipment ------- --------- -------- ------- ------ Glue and thread ------- --------- -------- ------ ------- Outbound shipping costs ------- --------- -------- ------- ------- Raw materials handling costs -------- --------- -------- ------- ------- Salary of public relations manager -------- --------- --------- ------- ------- Production run setup costs -------- --------- --------- ------- ------- Plant utilities --------- --------- --------- ------- ------- Electricity cost of retail stores ---------- -------- ---------- -------- ------- Research and development expense -------- -------- ---------- -------- ------- 11) Performance reporting and flexible budgeting - For the stamping department of a manufacturing firm, the standard cost for direct labor is $12 per hour, and the production standard calls for 1,000 stampings per hour. During June, 168 hours were required for actual production of 148,000 stampings. Actual direct labor cost for the stamping department for June was $2.184. Required: a) Complete the following performance report for June: Fixed Budget Actual Budget Variance Direct labor b) Analyze the budget variance by calculating the direct labor efficiency and rate variances for June. c) What alternatives to the preceding monthly report could improve control over the stamping department?s direct labor?
