Problem 1: Prepare in good form an income statement for Franklin Kite Co, Inc. Take your calculations all the way to computing earnings per share.
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Sales
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$900,000
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Shares outstanding
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50,000
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Cost of goods sold
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400,000
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Interest Expense
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40,000
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Selling and administrative expense
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60,000
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Depreciation expense
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20,000
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Preferred stock dividends
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80,000
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Taxes
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50,000
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Problem 2: Fill in the blank spaces with categories 1 through 7:
1. Balance sheet (BS)
2. Income statement (IS)
3. Current Asset (CA)
4. Fixed assets (FA)
5. Current liabilities (CL)
6. Long term liabilities (LL)
7. Stockholders' equity (SE)
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Indicate Whether Item Is on Balance Sheet (BS) or Income Statement (IS)
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If on Balance Sheet, Designate Which Category
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Item
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Accounts receivable
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Retained earnings
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Income tax expenses
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Accrued expenses
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Cash
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Selling and administrative expenses
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Plant and equipment
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Operating expenses
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Marketable securities
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Sales
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Notes Payable (6 months)
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Bonds payable, maturity 2019
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Common stock
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Depreciation expense
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Inventories
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Capital in excess of par value
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Net income (earnings after taxes)
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Income tax payable
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Problem 3: Amigo Software Inc. has total assets of $889,000, current liabilities of $192,000, and long term liabilities of $154,000. There is $87,000 in preferred stock outstanding. Thirty thousand shares of common stock have been issued.
a. Compute book value (net worth) per share.
b. If there is $56,300 in earnings available to common stockholders and the firm's stock has a P/E of 23 times earnings per share, what is the current price of the stock?'
c. What is the ratio of market value per share to book value per share?
Problem 4: Network Communications has total assets of $1,500,000 and current assets of $612,000. Its turns over its fixed assets three times a year. It has $319,000of debt. Its return on sales is 8%. What is its return on stockholder's equity?
Problem 5: The Lancaster Corporation's income statement is given below.
a. What is the times-interest-earned ratio?
b. What would be the fixed-charge-coverage ratio?
- Sales ............................................................................................................................................ $246,000
- Cost of goods sold ........................................................................................................................ 122,000
- Gross profit ................................................................................................................................. $124,000
- Fixed charges (other than interest) .................................................................................................. 27,500
- Income before interest and taxes ................................................................................................. $ 96,500
- Interest ............................................................................................................................................. 21,800
- Income before taxes .................................................................................................................... $ 74,700
- Taxes (35%) ..................................................................................................................................... 26,145
- Income after taxes......................................................................................................................... $ 48,555
Problem 6: Quantum Moving Company has the following day. Industry information also is shown.
Company Data Industry Data on
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Year
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Net Income
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Total Assets
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Net Income/Total Assets
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2011
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$424,000
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$2,843,000
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14.0%
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2012
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428,000
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3,267,000
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9.8
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2013
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412,000
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3,834,000
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3.9
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Year
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Debt
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Total Assets
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Industry Data on Debt/Total Assets
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2011
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$1,722,000
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$2,843,000
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56.6%
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2012
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1,732,000
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3,267,000
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42.0
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2013
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1,950,000
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3,834,000
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38.0
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As an industry analyst comparing the firm to the industry are you likely to praise or criticize the firm in terms of
a. Net income/Total assets.
b. Debt/Total assets.
Problem 7: Cyber Mechanical Supplies produces a product with the following costs as of July 1, 2012:
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Material
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$6
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Labor
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4
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Overhead
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2
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Total
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$12
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Beginning inventory at these costs on July 1 was 5,000 units. From July 1 to December 1, Convex produced 15,000 units. These units had a material cost of $10 per unit. The costs for labor and overhead were the same. Convex uses FIFO inventory accounting.
Problem 8: Watt's Lighting Stores made the following sales projection for the next six months. All sales are credit sales.
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March
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$35,000
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April
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41,000
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May
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30,000
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June
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39,000
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July
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47,000
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August
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49,000
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Sales in January and February were $38,000 and $37,000, respectively.
Experience has shown that of total sales, 10 percent are uncollectible, 30 percent are collected in the month of sale, 40 percent are collected in the following month, and 20 percent are collected two months after sale.
Prepare a monthly cash receipts schedule for the firm for March through August.
Problem 9: Eaton Tool Company has fixed costs of $255,000, sells its units for $66, and has variable costs of $36 per unit.
a. Compute the breakeven point.
b. Ms. Eaton comes up with a new a new plan to cut fixed costs to $200,000. However, more labor will now be required, which will increase variable costs per unit to $39. The sales price will remain at $66. What is the new break-even point?
c. Under the new plan, what is likely to happen to profitability at very high volumes levels (Compared to the old plan)?
Problem 10: Healthy Foods Inc. sells 50 pounds bags of grapes to the military for $10 a bag. The fixed costs of this operation are $80,000, while the variable costs of grapes are $.10 per pound.
a. What is the breakeven point in bags?
b. Calculate the profit or loss on 12,000 bags and on 25,000 bags.
c. What is the degree of operating leverage at 20,000 bags and at 25,000 bags? Why does the degree of operating leverages change as the quantity sold increases?
d. If Healthy Foods has annual interest expenses of $10,000, calculate the degree of financial leverage at both 20,000 and 25,000 bags.
e. What is the degree of combined leverage at both sales levels?
Problem 11: Firms in Japan often employ both high operating and financial leverage because of the use of modern technology and close borrower-lender relationships. Assume the Mitaka Company has a sales volume of 130,000 units at a price of $30 per unit; variable costs are $10 per unit, and fixed costs are $1,850,000. Interest expense is $405,000.
What is the degree of combined leverage for this Japanese firm?