Dovers management would like to know the effect of your adjustment on the following ratios:
Asset Turnover (Net Sales / average total assets)
Current Ratio
ROA
Assignment: Calculations
1. Calculate each of the three (3) ratios before you make any adjustments.
This is Calculation of each of the three (3) ratios before an any adjustments made. But you can check if I did it right.
Inventory Turnover:
COGS/Average Inventory= $15,876,201/3,795,800= 4.183
Current Ratio: Current Assets /Current Liabilities = $7,941,270/$2,143,594= 3.705
ROA: Net Income/Average Total Assets= $3,450,426/$17,574,885= 0.196
2. Make the appropriate journal entries, if any, to account for the trade-in (including any necessary changes to income tax expense).
3. Make any necessary changes to the financial statements.
3. Calculate the three (3) ratios after you make any adjustments.
Show were the adjustment will occur in the Finance sheets I provided. Also, the yellow highlight mean nothing I just forget to remove it.
Intermediate 1 FSU Project Part #2: Acquiring & Disposing of PPE Goal: To practice recording the disposal and purchase of PPE and to determine the effects of these transactions on the financial statements. (See Topic Guides A 22, 25, 42, 43). 6. Dover's CFO argued that the company should pass on this opportunity because of the drain on cash. 'Even though it's a great deal,' he argued, 'we don't want to be short on cash. What if something comes up? Also, how will we explain the effect on our I/S? Last minute decisions don't sit well with analysts.' What would be the consequences of following the CFO's suggestion? What would be the consequences for making these deals for PPE now?' Information: On December 15th, Dover's management was approached by a vendor offering them a chance purchase a specialized set of assets for only $754,000. The set includes two machines, one that retails for $329,000 and one that retails for $339,000, a custom conveyor belt that the vendor estimates has a retail value of $222,000, and a small storage facility with an estimated market value of $170,000. The vendor has offered Dover this deal because the company that ordered the units (one Dover's competitors) has declared bankruptcy. Hints: 1. While you will probably want to do your allocation table for each item separate, make sure that your journal entry for the new PPE only includes the accounts that Dover has actually chose to use (i.e. those in the balance sheet). 2. Remember, if you change an income statement account, there WILL be a tax effect! To make room for the new equipment, Dover has decided to sell off an old, cumbersome piece of equipment that will be replaced the new machines. The old equipment was originally purchased for $247,000 and has been fully depreciated to its estimated salvage value of $25,935. Dover's sales department was able to sell the old machine for $23.577, a pretty good deal considering the change in production methods and the improvements in technology. Although the deal was completed on December 29th, no journal entries have yet been recorded. Before you start, you should know that Dover's finance team has decided to round all percentages used for assigning values to assets to 3 decimal places. Dover's management would like to know the effect of your adjustment on the following ratios: Asset Turnover (Net Sales / average total assets) . Current Ratio ROA Assignment: Calculations 1. Calculate each of the three (3) ratios before you make any adjustments. 2. Make the appropriate journal entries, if any, to account for the trade-in (including any necessary changes to income tax expense). 3. Make any necessary changes to the financial statements. 4. Calculate the three (3) ratios after you make any adjustments. Critical Thinking 5. What do you think Dover's creditors' (i.e. bank and bond holder) reaction will be to the exchange? In other words, based on your changes to the financial statements and the change in the ratios, do you think the creditors will be happy with the exchange? Why or why not? Dover Co. Balance Sheet As of 12/31/2020 Dover Co. Multi-Step Income Statement For Year Ended December 31, 2020 Sales Revenue Sales Revenue Less: Sales Discounts $349,200 Sales Returns $1.382.250 Net Sales Revenue 2020 2019 $29.100.000 $1.731.450 $27,368,550 Cost of Goods Sold Cost of Goods Sold Gross Profit $1,256.000 $2,619,000 ($183,330) SO $3,517,600 $368,250 $363.750 $7.941,270 $1,455,000 $2,473,500 (S727,500) $0 $4,074,000 $436,500 $291,000 $8,002,500 $15,876,201 $11,492,349 Dover Co. Statement of Cash Flows For Year Ended December 31, 2020 Cash Flow from Operations Net Income $3,450,426 Adjustments: Change in A/R ($689,670) Change in Inventory $556,400 Change in Prepaid Insurance $68,250 Change in Prepaid Utilities (572,750) Depreciation $1,746,000 Gain on Sale of A/R SO Change in AP ($1,349,438) Change in Income Tax Payable $233,832 Change in Unearned Revenue $291,000 Change in Wages Payable ($14.550) $769.074 Net Cash Flow from Operations $4,219,500 Current Assets Cash A/R Allowance for Bad Debts Due from First National Bank Inventory Prepaid Insurance Prepaid Utilities Total Current Assets Long-term Investments Loans to other businesses Expansion Fund Total Long-term Investments PPE Land Building Equipment Accumulated Depreciation Total PPE Intangible Assets Patents Total Assets $1,164,000 $873,000 $2,037,000 $1,164,000 $873,000 $2,037,000 $545,625 $37,830 $141,863 $400.125 $1,455,000 $238.256 Operating Activities Selling Expenses Advertising Expense Bad Debt Expense Miscellaneous Selling Expenses Sales Force Salaries Expense Selling Commissions Expense Shipping Expense Total Selling Expenses Administrative Expenses Executive Salaries Expense Depreciation Expense Insurance Expense Miscellaneous Admin. Expenses Office Supplies Expense Consulting and Legal Fees Utilities Expense Total Administrative Expenses Income from Operations $3,201,000 $2,037,000 $2,328,000 $2,328,000 $8,148,000 $3.783.000 ($4.656.000) ($2.910.000) $9,021,000 $5,238,000 $2.818,699 $436,500 $19.435.770 $436,500 $15.714.000 $1,273.125 $1,746,000 $250,988 $14,368 $112.763 $18,188 $218.250 Cash Flow from Investments Sale of A/R Purchase of Land Purchase of Equipment Net Cash Flow from Investments $0 ($1,164,000) ($4.365.000) $3,633,682 $6,452,381 $5,039,968 ($5,529,000) $1,746,000 $291,000 $436,500 $363,750 $145,500 $2,982,750 Other Gains and Losses Rent Revenue Gain on Sale of AIR Interest Expense Income from Continuing Operations before Taxes Income Tax Expense Net Income $90.938 $0 (5185,513) (594,575) $4.945.393 ($1,494,967) $3.450.426 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable $396,562 Income Tax Payable $524,832 Unearned Revenue $727,500 Wages Payable $349,200 Current Portion of Loan Payable $145,500 Total Current Liabilities $2,143,594 Long-term Debt Loan Payable $727,500 Notes Payable $4.074.000 Total Long-term Debt $4.801.500 Total Liabilities $6,945,094 Stockholders' Equity Common Stock $3,300,000 ($1 par, $6,600,000.00 authorized, $3,300,000 outstanding Additional Paid-In Capital 5873,000 Retained Earnings $8.317.676 Total Stockholders' Equity $12.490.676 Total Liabilities and Stockholder's Equity $19.435.770 S873,000 $2.328.000 $3.201.000 $6,183,750 Cash Flow from Financing Repayment of Loans Issuance of Notes Payable Payments of Dividends Net Cash Flow from Financing ($145,500) $1,746,000 ($490.000) $1,110.500 EPS 1.05 $3,300,000 Net Increase (Decrease) in Cash Cash, January 1, 2020 Cash, December 31, 2020 $873,000 $5.357.250 $9.530.250 $15.714.000 ($199,000) $1.455.000 $1.256.000 Intermediate 1 FSU Project Part #2: Acquiring & Disposing of PPE Goal: To practice recording the disposal and purchase of PPE and to determine the effects of these transactions on the financial statements. (See Topic Guides A 22, 25, 42, 43). 6. Dover's CFO argued that the company should pass on this opportunity because of the drain on cash. 'Even though it's a great deal,' he argued, 'we don't want to be short on cash. What if something comes up? Also, how will we explain the effect on our I/S? Last minute decisions don't sit well with analysts.' What would be the consequences of following the CFO's suggestion? What would be the consequences for making these deals for PPE now?' Information: On December 15th, Dover's management was approached by a vendor offering them a chance purchase a specialized set of assets for only $754,000. The set includes two machines, one that retails for $329,000 and one that retails for $339,000, a custom conveyor belt that the vendor estimates has a retail value of $222,000, and a small storage facility with an estimated market value of $170,000. The vendor has offered Dover this deal because the company that ordered the units (one Dover's competitors) has declared bankruptcy. Hints: 1. While you will probably want to do your allocation table for each item separate, make sure that your journal entry for the new PPE only includes the accounts that Dover has actually chose to use (i.e. those in the balance sheet). 2. Remember, if you change an income statement account, there WILL be a tax effect! To make room for the new equipment, Dover has decided to sell off an old, cumbersome piece of equipment that will be replaced the new machines. The old equipment was originally purchased for $247,000 and has been fully depreciated to its estimated salvage value of $25,935. Dover's sales department was able to sell the old machine for $23.577, a pretty good deal considering the change in production methods and the improvements in technology. Although the deal was completed on December 29th, no journal entries have yet been recorded. Before you start, you should know that Dover's finance team has decided to round all percentages used for assigning values to assets to 3 decimal places. Dover's management would like to know the effect of your adjustment on the following ratios: Asset Turnover (Net Sales / average total assets) . Current Ratio ROA Assignment: Calculations 1. Calculate each of the three (3) ratios before you make any adjustments. 2. Make the appropriate journal entries, if any, to account for the trade-in (including any necessary changes to income tax expense). 3. Make any necessary changes to the financial statements. 4. Calculate the three (3) ratios after you make any adjustments. Critical Thinking 5. What do you think Dover's creditors' (i.e. bank and bond holder) reaction will be to the exchange? In other words, based on your changes to the financial statements and the change in the ratios, do you think the creditors will be happy with the exchange? Why or why not? Dover Co. Balance Sheet As of 12/31/2020 Dover Co. Multi-Step Income Statement For Year Ended December 31, 2020 Sales Revenue Sales Revenue Less: Sales Discounts $349,200 Sales Returns $1.382.250 Net Sales Revenue 2020 2019 $29.100.000 $1.731.450 $27,368,550 Cost of Goods Sold Cost of Goods Sold Gross Profit $1,256.000 $2,619,000 ($183,330) SO $3,517,600 $368,250 $363.750 $7.941,270 $1,455,000 $2,473,500 (S727,500) $0 $4,074,000 $436,500 $291,000 $8,002,500 $15,876,201 $11,492,349 Dover Co. Statement of Cash Flows For Year Ended December 31, 2020 Cash Flow from Operations Net Income $3,450,426 Adjustments: Change in A/R ($689,670) Change in Inventory $556,400 Change in Prepaid Insurance $68,250 Change in Prepaid Utilities (572,750) Depreciation $1,746,000 Gain on Sale of A/R SO Change in AP ($1,349,438) Change in Income Tax Payable $233,832 Change in Unearned Revenue $291,000 Change in Wages Payable ($14.550) $769.074 Net Cash Flow from Operations $4,219,500 Current Assets Cash A/R Allowance for Bad Debts Due from First National Bank Inventory Prepaid Insurance Prepaid Utilities Total Current Assets Long-term Investments Loans to other businesses Expansion Fund Total Long-term Investments PPE Land Building Equipment Accumulated Depreciation Total PPE Intangible Assets Patents Total Assets $1,164,000 $873,000 $2,037,000 $1,164,000 $873,000 $2,037,000 $545,625 $37,830 $141,863 $400.125 $1,455,000 $238.256 Operating Activities Selling Expenses Advertising Expense Bad Debt Expense Miscellaneous Selling Expenses Sales Force Salaries Expense Selling Commissions Expense Shipping Expense Total Selling Expenses Administrative Expenses Executive Salaries Expense Depreciation Expense Insurance Expense Miscellaneous Admin. Expenses Office Supplies Expense Consulting and Legal Fees Utilities Expense Total Administrative Expenses Income from Operations $3,201,000 $2,037,000 $2,328,000 $2,328,000 $8,148,000 $3.783.000 ($4.656.000) ($2.910.000) $9,021,000 $5,238,000 $2.818,699 $436,500 $19.435.770 $436,500 $15.714.000 $1,273.125 $1,746,000 $250,988 $14,368 $112.763 $18,188 $218.250 Cash Flow from Investments Sale of A/R Purchase of Land Purchase of Equipment Net Cash Flow from Investments $0 ($1,164,000) ($4.365.000) $3,633,682 $6,452,381 $5,039,968 ($5,529,000) $1,746,000 $291,000 $436,500 $363,750 $145,500 $2,982,750 Other Gains and Losses Rent Revenue Gain on Sale of AIR Interest Expense Income from Continuing Operations before Taxes Income Tax Expense Net Income $90.938 $0 (5185,513) (594,575) $4.945.393 ($1,494,967) $3.450.426 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable $396,562 Income Tax Payable $524,832 Unearned Revenue $727,500 Wages Payable $349,200 Current Portion of Loan Payable $145,500 Total Current Liabilities $2,143,594 Long-term Debt Loan Payable $727,500 Notes Payable $4.074.000 Total Long-term Debt $4.801.500 Total Liabilities $6,945,094 Stockholders' Equity Common Stock $3,300,000 ($1 par, $6,600,000.00 authorized, $3,300,000 outstanding Additional Paid-In Capital 5873,000 Retained Earnings $8.317.676 Total Stockholders' Equity $12.490.676 Total Liabilities and Stockholder's Equity $19.435.770 S873,000 $2.328.000 $3.201.000 $6,183,750 Cash Flow from Financing Repayment of Loans Issuance of Notes Payable Payments of Dividends Net Cash Flow from Financing ($145,500) $1,746,000 ($490.000) $1,110.500 EPS 1.05 $3,300,000 Net Increase (Decrease) in Cash Cash, January 1, 2020 Cash, December 31, 2020 $873,000 $5.357.250 $9.530.250 $15.714.000 ($199,000) $1.455.000 $1.256.000
