Reference no: EM13568966

1.The following information is available for Chokr Company:

	Dec 31, 2014	Dec 31, 2013
Cash	$140,000	$ 97,000
Retained earnings	665,000	542,000
Cash from operating activities	?
Cash from investing activities	(481,000)
Cash from financing activities	(285,000)
Dividends declared and paid	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:

	2014	2013	2012
Cash	$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?