aQ1:

XYZ Ltd. is a group of doctors, dentists, professional sports players and celebrities with excess funds who wish to find small companies with great innovative ideas and invest in them. Several of the small companies present their idea to XYZ under a televised show broadcasted on national TV.

The following information has been derived from 3 years? financial statements of ABC Ltd., one of the small companies looking for investment from XYZ.

Balance Sheets, December 31
	2015	2014	2013
Current assets
Cash	50,000	45,000	94,000
Account receivable, net	130,000	120,000	110,000
Merchandise inventories	250,000	230,000	195,000
Other current assets	45,000	53,000	42,000
Total current assets	475,000	448,000	441,000
Property, plant & equipment, net	196,000	191,000	175,000
Total assets	671,000	639,000	616,000
Current liabilities
Accounts payable	175,000	195,000	185,000
Accrued liabilities	1,000	6,500	21,000
Total current liabilities	176,000	201,500	206,000
Long-term liabilities	230,000	250,000	295,000
Total liabilities	406,000	451,500	501,000
Shareholders? equity
Common shares	110,000	95,000	65,000
Preferred shares, note 5	25,000	25,000	25,000
Retained earnings	130,000	67,500	25,000
Total shareholders? equity	265,000	187,500	115,000
Total liabilities and shareholders? equity	671,000	639,000	616,000

Income statements	2015	2014
Net sales	723,700	694,000
Cost of goods sold	347,350	344,500
Gross margin	376,350	349,500
Operating expenses	183,500	179,750
Income from operations	192,850	169,750
Interest expense	37,525	39,450
Income before income tax	155,325	130,300
Income tax expense	38,831	32,575
Net income	116,494	97,725

Additional information:

The common shares are traded on the stock exchange. At the end of 2015, the value of the share was 15.00, and at the end of 2014, the value per share was 14.00.

The number of shares outstanding on the market is as follows:

2015: 25,000

2014: 15,000

2013: 10,000

All sales are made on credit.

The company?s income tax rate is 25%.

The preferred shares are cumulative, no par value, 2.50, 10,000 shares authorised and 2,000 shares issued and outstanding.

To answer this question:

Assume that you, the consultant, have been hired by XYZ to assist in the analysis of the financial statements and provide a recommendation whether XYZ should invest or not invest in this company. Justify your recommendation based on the calculation of the following financial ratios:

Current ratio (liquidity)

Operating profit margin (profitability)

ROSF (profitability)

Average settlement period for trade receivables (efficiency)

Earnings per share (investment)

Q2:

Bulls Corporation has a December 31 fiscal year end. The controller of the company is currently completing the financial statements of the company in order to present them at the next board meeting. He completed most of the work but did not get around to finishing the cash flow statement. He gives you the following financial information in order for you to help him with the preparation of the cash flows.

Balance Sheet	2015	2014
Cash	38,500	8,000
Accounts receivable, net	20,000	29,500
Merchandise inventory	37,000	38,000
Prepaid insurance	9,500	15,000
Land	54,500	40,600
Equipment, at cost	104,500	90,700
Less: accumulated amortisation	(30,500)	(15,500)
Patent	49,000	53,200
Total assets	282,500	259,500
Accounts payable	58,500	42,000
Income taxes payable	16,500	11,500
Advertising payable	5,000	-
Dividends payable	40,000	10,000
Notes payable	40,000	83,000
Share capital	93,000	78,500
Retained earnings	29,500	34,500
Total liabilities and shareholders? equity	282,500	259,500

Sales	1,090,000
Cost of goods sold	672,000
Gross profit	418,000
Operating expense
Salaries expense	195,000
Advertising expense	35,000
Rent expense	67,500
Insurance expense	34,500
Amortisation expense	25,000
Total operating expenses	357,000
Income from operations	61,000
Interest expense	2,500
Gain on sale of equipment	7,500
Income before income taxes	66,000
Income tax expense	4,000
Net income	62,000

Additional information:

Bulls Corp. purchased equipment for 36,300 in cash during the year.

Bulls Corp. sold equipment for cash during the year.

No patent has been purchased nor sold in the year.

Accounts payable relates solely to transactions with suppliers for inventory.

To answer this question

Prepare a complete cash flow statement using the indirect method for the 2015 fiscal year.

Compute the following amounts:

Cash collected from clients during the year.

Cash paid for advertising expense.

Cash paid to suppliers for inventory.

Q3:

Candles Limited presented the following financial information for the year ending December 31, 2015:

Balance Sheet

	2015	2014
Cash	36,000	9,000
Accounts receivable	15,000	26,500
Inventory	35,000	42,000
Supplies	10,000	24,000
Prepaid expenses	5,000	12,000
Investments, long-term	23,000	25,000
Land	62,000	39,500
Computer equipment, at cost	96,000	92,000
Less: accumulated amortisation	-27,000	-16,000
Total assets	255,000	254,000
Accounts payable	75,000	46,250
Income taxes payable	9,000	17,250
Salaries payable	15,000	32,000
Notes payable	35,000	52,500
Share capital	88,000	72,500
Retained earnings	33,000	33,500
Total liabilities and shareholders? equity	255,000	254,000

Income Statement

Sales	350,000
Cost of goods sold	210,000
Gross profit	140,000
Operating expenses
Salaries expense	25,000
Amortisation expense	20,000
General & admin expense	37,500
Total operating expenses	82,500
Income from operations	57,500
Gain on sale of computer equipment	2,500
Income before income taxes	60,000
Income tax expense	12,000
Net income	48,000

Additional information:

Candles purchased computer equipment during the year, all paid in cash.

Candles sold computer equipment with a cost 27,500 for cash proceeds of 21,000.

Candles recognised a gain on this sale of 2,500.

Accounts payable relate solely to purchases of inventory.

Investments were sold during the year at their book value for cash.

To answer this question:

Prepare the cash flow statement for the year ended December 31, 2015, using the indirect method for operating activities.

Compute the amount of cash collected from customers during the year.

Compute the amount of cash paid to suppliers for inventory during the year.

You should explain the answers and provide at least three a peer reviewed or academic reference in Harford style

Q1: XYZ Ltd. is a group of doctors, dentists, professional sports players and celebrities with excess funds who wish to find small companies with great innovative ideas and invest in them. Several of the small companies present their idea to XYZ under a televised show broadcasted on national TV. The following information has been derived from 3 years' financial statements of ABC Ltd., one of the small companies looking for investment from XYZ. Balance Sheets, December 31 2015 2014 2013 Cash 50,000 45,000 94,000 Account receivable, net 130,000 120,000 110,000 Merchandise inventories 250,000 230,000 195,000 Other current assets 45,000 53,000 42,000 Total current assets 475,000 448,000 441,000 Property, plant & equipment, net 196,00 0 191,00 0 175,00 0 Current assets Total assets 671,000 639,000 616,000 Accounts payable 175,000 195,000 185,000 Accrued liabilities 1,000 6,500 21,000 Total current liabilities 176,000 201,500 206,000 Long-term liabilities 230,00 0 250,00 0 295,00 0 Total liabilities 406,00 0 451,50 0 501,00 0 Current liabilities Shareholders' equity Common shares 110,000 95,000 65,000 Preferred shares, note 5 25,000 25,000 25,000 Retained earnings 130,00 0 67,500 25,000 Total shareholders' equity 265,00 0 187,50 0 115,000 Total liabilities and shareholders' equity 671,000 639,000 616,000 Income statements 2015 2014 Net sales 723,700 694,000 Cost of goods sold 347,350 344,500 Gross margin 376,350 349,500 Operating expenses 183,500 179,750 Income from operations 192,850 169,750 Interest expense 37,525 39,450 Income before income tax 155,325 130,300 Income tax expense 38,831 32,575 Net income 116,494 97,725 Additional information: 1. 2. The common shares are traded on the stock exchange. At the end of 2015, the value of the share was 15.00, and at the end of 2014, the value per share was 14.00. The number of shares outstanding on the market is as follows: 1. 2015: 25,000 2. 2014: 15,000 3. 2013: 10,000 3. All sales are made on credit. 4. The company's income tax rate is 25%. 5. The preferred shares are cumulative, no par value, 2.50, 10,000 shares authorised and 2,000 shares issued and outstanding. To answer this question: Assume that you, the consultant, have been hired by XYZ to assist in the analysis of the financial statements and provide a recommendation whether XYZ should invest or not invest in this company. Justify your recommendation based on the calculation of the following financial ratios: Current ratio (liquidity) Operating profit margin (profitability) ROSF (profitability) Average settlement period for trade receivables (efficiency) Earnings per share (investment) Q2: Bulls Corporation has a December 31 fiscal year end. The controller of the company is currently completing the financial statements of the company in order to present them at the next board meeting. He completed most of the work but did not get around to finishing the cash flow statement. He gives you the following financial information in order for you to help him with the preparation of the cash flows. Balance Sheet 2015 2014 Cash 38,500 8,000 Accounts receivable, net 20,000 29,500 Merchandise inventory 37,000 38,000 Prepaid insurance 9,500 15,000 Land 54,500 40,600 Equipment, at cost 104,500 90,700 Less: accumulated amortisation (30,500) (15,500) Patent 49,000 53,200 282,500 259,500 Accounts payable 58,500 42,000 Income taxes payable 16,500 11,500 Advertising payable 5,000 - Dividends payable 40,000 10,000 Notes payable 40,000 83,000 Share capital 93,000 78,500 Retained earnings 29,500 34,500 282,500 259,500 Total assets Total liabilities and shareholders' equity Sales 1,090,000 Cost of goods sold 672,000 Gross profit 418,000 Operating expense Salaries expense 195,000 Advertising expense 35,000 Rent expense 67,500 Insurance expense 34,500 Amortisation expense 25,000 Total operating expenses 357,000 Income from operations 61,000 Interest expense 2,500 Gain on sale of equipment 7,500 Income before income 66,000 taxes Income tax expense 4,000 Net income 62,000 Additional information: 1. Bulls Corp. purchased equipment for 36,300 in cash during the year. 2. Bulls Corp. sold equipment for cash during the year. 3. No patent has been purchased nor sold in the year. 4. Accounts payable relates solely to transactions with suppliers for inventory. To answer this question 1. 2. Prepare a complete cash flow statement using the indirect method for the 2015 fiscal year. Compute the following amounts: 1. Cash collected from clients during the year. 2. Cash paid for advertising expense. 3. Cash paid to suppliers for inventory. Q3: Candles Limited presented the following financial information for the year ending December 31, 2015: Balance Sheet 2015 2014 Cash 36,000 9,000 Accounts receivable 15,000 26,500 Inventory 35,000 42,000 Supplies 10,000 24,000 Prepaid expenses 5,000 12,000 Investments, long-term 23,000 25,000 Land 62,000 39,500 Computer equipment, at cost 96,000 92,000 Less: accumulated amortisation -27,000 -16,000 255,000 254,000 Accounts payable 75,000 46,250 Income taxes payable 9,000 17,250 Total assets Salaries payable 15,000 32,000 Notes payable 35,000 52,500 Share capital 88,000 72,500 Retained earnings 33,000 33,500 255,000 254,000 Total liabilities and shareholders' equity Income Statement Sales 350,000 Cost of goods sold 210,000 Gross profit 140,000 Operating expenses Salaries expense 25,000 Amortisation expense 20,000 General & admin expense 37,500 Total operating expenses 82,500 Income from operations 57,500 Gain on sale of computer equipment 2,500 Income before income taxes 60,000 Income tax expense 12,000 Net income 48,000 Additional information: 1. Candles purchased computer equipment during the year, all paid in cash. 2. Candles sold computer equipment with a cost 27,500 for cash proceeds of 21,000. 3. Candles recognised a gain on this sale of 2,500. 4. Accounts payable relate solely to purchases of inventory. 5. Investments were sold during the year at their book value for cash. To answer this question: 1. Prepare the cash flow statement for the year ended December 31, 2015, using the indirect method for operating activities. 2. Compute the amount of cash collected from customers during the year. 3. Compute the amount of cash paid to suppliers for inventory during the year. You should explain the answers and provide at least three a peer reviewed or academic reference in Harford style