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1) Identify accounts by category and financial st...

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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?

 

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