1.The following information is available for Chokr Company:
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Dec 31, 2014
|
Dec 31, 2013
|
|
Cash
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$140,000
|
$ 97,000
|
|
Retained earnings
|
665,000
|
542,000
|
|
Cash from operating activities
|
?
|
|
|
Cash from investing activities
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(481,000)
|
|
|
Cash from financing activities
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(285,000)
|
|
|
Dividends declared and paid
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47,000
|
|
|
Net income
|
?
|
|
1-1. What is net income?
1-2. What is cash from operating activities?
1-3. What is the most stage of the business life cycle is this company in, and why?
2.Simmons Inc., a payroll preparation services company, has the following data as of December 31 each year:
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2014
|
2013
|
2012
|
|
Cash
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$85,000
|
75,000
|
70,000
|
|
Other current assets
|
480,000
|
420,000
|
390,000
|
|
Current liabilities
|
325,000
|
270,000
|
290,000
|
|
Depreciation expense
|
57,000
|
51,000
|
44,000
|
|
Net income
|
59,000
|
50,000
|
45,000
|
All current assets and current liabilities relate to operations. [hint: think about what these may be for this type of business]
2-1. Compute net cash used or provided by operations (CFFO) for 2013 and 2014.
2-2. Compare the result to your answer in 2-1 if Simmons delayed paying $40,000 of accounts payable from late 2013 to 2014? (I would recommend the use the handy hints for solving weird accounting problems here...). Lay your work out carefully.
2-3. If instead of 2-2, compare your result in 2-1 if Simmons decided to delay purchase of $40,000 of inventory for cash from late 2013 to 2014?
2-4. Can you manipulate cash flows from operations? Explain.
2-5. Some people define cash flows from operations as Net Income with depreciation expense added back. Compute this for 2013 and 2014. Evaluate this version as an approximation to CFFO.
2-6. Under what circumstances is "net income + depreciation" measure of cash flows a good estimate of actual cash flows from operations? When would this measure be a poor estimate of actual cash flows of operations?
3.3-1. On April 1, 2014, Cruz Corp. purchased 50 of Chapman Inc.'s 8%, $1,000 bonds that mature in 15 years at a price that yielded a 7% rate of return. Interest is paid April 1 and October 11.
- How much will Cruz pay for these bonds?
- Provide three reasons why the market rate for this bond might have changed from the stated rate at issue.
3-2. Rose Corp. leased equipment under a lease calling for variable payments made at the end of each of three years, which is the asset's life [so this is a capital lease]. The first payment was $4,000, and the second and third payments were $5,000 each. If Rose were to borrow the money to buy the equipment today, it would be charged a 5% interest rate annually. Determine the amount at which the leased asset should be recorded on Rose's books today.
4.Johnson Inc. purchased equipment at 1/1/14 and struck a deal as follows: $10,000 in cash down, followed by $20,000 payments at 12/31 for 4 years. Johnson can borrow at 6%, its seller can borrow at 4%.
4-1. Determine the cash equivalent price for the equipment.
4-2. Record the purchase of the equipment.
4-3. Prepare an amortization table for the note.
4-4. Write any necessary entries for the end of the third year.
4-5. How much total interest will Johnson Inc. pay?