Assignment 1 -
(SCF-Indirect Method, and Net Cash Flow from Operating Activities, Direct Method) Comparative balance sheet accounts of Marcus Inc. are presented below.
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MARCUS INC. COMPARATIVE BALANCE SHEET ACCOUNTS AS OF DECEMBER 31, 2014 AND 2013 December 31
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Debit Accounts
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2014
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2013
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Cash
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$42,000
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$33,750
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Accounts Receivable
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70,500
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60,000
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Inventory
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30,000
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24,000
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Investment (available-for-sale)
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22,250
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38,500
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Machinery
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30,000
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18,750
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Building
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67,500
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56,250
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Land
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7,500
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7,500
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$269,750
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$238,750
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Credit Accounts
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Allowance for Doubtful Accounts
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$2,250
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$1,500
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Accumulated Depreciation-Machinery
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5,625
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2,250
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Accumulated Depreciation-Building
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13,500
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9,000
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Accounts Payable
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35,000
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24,750
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Accrued Payables
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3,375
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2,625
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Long-Term Notes Payable
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21,000
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31,000
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Common Stock, no-pair
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150,000
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125,000
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Retained Earnings
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39,000
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42,625
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$269,750
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$238,750
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Additional data (ignoring taxes):
1. Net income for the year was $42,500.
2. Cash dividends declared and paid during the year were $21,125.
3. A 20% stock dividend was declared during the year. $25,000 of retained earnings was capitalized.
4. Investments that cost $25,000 were sold during the year for $28,750.
5. Machinery that cost $3,750, on which $750 of depreciation had accumulated, was sold for $2,200.
Marcus's 2014 income statement follows (ignoring taxes).
Sales revenue $540,000
Less: Cost of goods sold 380,000
Gross margin 160,000
Less: Operating expenses (includes $8,625 depreciation and $5,400 bad debts) 120,450
Income from operations 39,550
Other: Gain on sale of investments $3,750
Loss on sale of machinery (800) 2,950
Net income $ 42,500
Instructions
(a) Compute net cash flow from operating activities using the direct method.
(b) Prepare a statement of cash flows using the indirect method.
Assignment 2 -
Q1. (Ratio Computations and Additional Analysis) Bradburn Corporation was formed 5 years ago through a public subscription of common stock. Daniel Brown, who owns 15% of the common stock, was one of the organizers of Bradburn and is its current president. The company has been successful, but it currently is experiencing a shortage of funds. On June 10, 2014, Daniel Brown approached the Topeka National Bank, asking for a 24-month extension on two $35,000 notes, which are due on June 30, 2015, and September30, 2015. Another note of $6,000 is due on March 31, 2016, but he expects no difficulty in paying this note on its.
Brown explained that Bradburn's cash flow problems are due primarily to the company's desire to finance a $300,000 plant expansion over the next 2 fiscal years through internally generated funds.
The commercial loan officer of Topeka National Bank requested the following financial reports for the last 2 fiscal years.
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BRADBURN CORPORATION BALANCE SHEET MARCH 31
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Assets
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2015
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2014
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Cash
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$18,200
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$12,500
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Notes receivable
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148,000
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132,000
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Accounts receivable (net)
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131,800
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125,500
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Inventories (at cost)
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105,000
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50,000
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Plant & equipment (net of depreciation)
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1,449,000
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1,420,500
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Total assets
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$1,852,000
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$1,740,500
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Liabilities and Stockholder's Equity
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Accounts payable
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$79,000
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$91,000
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Notes payable
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76,000
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61,000
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Accrued liabilities
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9,000
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6,000
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Common stock (130,000 shares, $10 per)
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1,300,000
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1,300,000
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Retained earningsa
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388,000
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282,000
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Total liabilities and stockholders' equity
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$1,852,000
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$1,740,500
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aCash dividends were paid at the rate of $1 per share in fiscal year 2014 and $2 per share in fiscal year 2015
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Instructions
(a) Compute the following items for Bradburn Corporation.
(1) Current ratio for fiscal years 2014 and 2015.
(2) Acid-test (quick) ratio for fiscal years 2014 and 2015.
(3) Inventory turnover for fiscal year 2015.
(4) Return on assets for fiscal years 2014 and 2015. (Assume total assets were $1,688,500 at 3/31/13.)
(5) Percentage change in sales, cost of goods sold, gross margin, and net income after taxes from fiscal year 2014 to 2015.
(b) Identify and explain what other financial reports and/or financial analyses might be helpful to the commercial loan officer of Topeka National Bank in evaluating Daniel Brown's request for a time extension on Bradburn's notes.
(c) Assume that the percentage changes experienced in fiscal year 2015 as compared with fiscal year 2014 for sales and cost of goods sold will be repeated in each of the next 2 years. Is Bradburn's desire to finance the plant expansion from internally generated funds realistic? Discuss.
(d) Should Topeka National Bank grant the extension on Bradburn's notes considering Daniel Brown's statement about financing the plant expansion through internally generated funds? Discuss.
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BRADBURN CORPORATION INCOME STATEMENT FOR THE FISCAL YEARS ENDED MARCH 31
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2015
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2014
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Sales revenue
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$3,000,000
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$2,700,000
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Cost of goods solda
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1,530,000
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1,425,000
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Gross margin
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1,470,000
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1,275,000
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Operating expenses
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860,000
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780,000
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Income before income taxes
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610,000
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495,000
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Income taxes (40%)
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244,000
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198,000
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Net income
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$366,000
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$297,000
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aDepreciation charges on the plant and equipment of $100,000 and $102,500 for fiscal years ended March 31, 2014 and 2015, respectively, are included in cost of goods sold.
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Q2. (Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.
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GILMOUR COMPANY COMPARATIVE BALANCE SHEET AS OF DECEMBER 31, 2015 AND 2014 December 31
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Assets
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2015
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2014
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Cash
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$180,000
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$275,000
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Accounts receivable
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220,000
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155,000
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Short-term investment
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270,000
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150,000
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Inventories
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1,060,000
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980,000
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Prepaid expanses
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25,000
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25,000
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Plant & equipment
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2,585,000
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1,950,000
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Accumulated depreciation
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(1,000,000)
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(750,000)
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$3,340,000
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$2,785,000
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Liabilities and Stockholders' Equity
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Account payable
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$50,000
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$75,000
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Accrued expenses
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170,000
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200,000
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Bonds payable
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450,000
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190,000
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Capital stock
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2,100,000
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1,770,000
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Retained earnings
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570,000
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550,000
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$3,340,000
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$2,785,000
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Instructions-
(a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders' equity.
(b) Prepare a comparative balance sheet of Gilmour Company showing the dollar change and the percent change for each item.
(c) Of what value is the additional information provided in part (a)?
(d) Of what value is the additional information provided in part (b)?