Reference no: EM132411263
Problem 1 - KKM Corporation discussed three different plans to finance $4,000,000 toward construction of a new warehouse. Under each of the following plans the securities will be issued at their par or face value amount, and the income tax rate is estimated at 25% of income.
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Plan#1
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Plan#2
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Plan#3
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Preferred 10% stock $40 Par
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2,000,000
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Common stock $10 Par
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4,000,000
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2,000,000
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1,000,000
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10% Bonds
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3,000,000
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Total
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4,000,000
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4,000,000
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4,000,000
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Instructions:
1. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $800,000.
2. Determine for each plan the earnings per share of common stock, assuming that the income before bond interest and income tax is $450,000.
3. Discuss the advantages and disadvantages of each plan.
Problem 2 - Data pertaining to the current position of Jones Company are as follows:
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Cash
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$80,000
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Temporary investments
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160,000
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Accounts/notes receivable (net)
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235,000
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Inventories
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190,000
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Prepaid expenses
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10,000
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Accounts payable
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158,000
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Notes payable (short term)
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80,000
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Accrued expenses
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12,000
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Instructions:
1. Compute (a) the working capital (b) the current ratio, and (c) the quick ratio. Round to one decimal place.
2. Compute the working capital, current ratio, and quick ratio after each of the following transactions. Consider each transaction separately and assume that only the transaction affects the data given above. Round to one decimal place.
A. Sold temporary investment at no gain or loss, $35,000.
B. Paid accounts payable, $40,000.
C. Purchased goods on account, $75,000.
D. Paid notes payable, $30,000.
E. Declared a cash dividend, $15,000.
F. Declared a common stock dividend on common stock, $32,000.
G. Borrowed cash on a long term note, $150,000.
H. Received cash on account, $ 175,000.
I. Paid cash prepaid expenses, $10,000.
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