Reference no: EM13753088

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.

Sales	$900,000
Shares outstanding	50,000
Cost of goods sold	400,000
Interest Expense	40,000
Selling and administrative expense	60,000
Depreciation expense	20,000
Preferred stock dividends	80,000
Taxes	50,000

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)

Indicate Whether Item Is on Balance Sheet (BS) or Income Statement (IS)	If on Balance Sheet, Designate Which Category	Item
		Accounts receivable
		Retained earnings
		Income tax expenses
		Accrued expenses
		Cash
		Selling and administrative expenses
		Plant and equipment
		Operating expenses
		Marketable securities
		Sales
		Notes Payable (6 months)
		Bonds payable, maturity 2019
		Common stock
		Depreciation expense
		Inventories
		Capital in excess of par value
		Net income (earnings after taxes)
		Income tax payable

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

Year	Net Income	Total Assets	Net Income/Total Assets
2011	$424,000	$2,843,000	14.0%
2012	428,000	3,267,000	9.8
2013	412,000	3,834,000	3.9

Year	Debt	Total Assets	Industry Data on Debt/Total Assets
2011	$1,722,000	$2,843,000	56.6%
2012	1,732,000	3,267,000	42.0
2013	1,950,000	3,834,000	38.0

 

 

 

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:

Material	$6
Labor	4
Overhead	2
Total	$12

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.

March	$35,000
April	41,000
May	30,000
June	39,000
July	47,000
August	49,000

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?